10. Stock-based and Other Compensation

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

Note 10 – Stock-based and Other Compensation

In December 2015, Lifeway stockholders approved the 2015 Omnibus Incentive Plan, which authorized the issuance of an aggregate of 3.5 million shares to satisfy awards of stock options, stock appreciation rights, unrestricted stock, restricted stock, restricted stock units, performance shares and performance units to qualifying employees. Under the Plan, the Board or its Audit and Corporate Governance Committee approves stock awards to executive officers and certain senior executives, generally in the form of restricted stock or performance shares. The number of performance shares that participants may earn depends on the extent to which the corresponding performance goals have been achieved. Stock awards generally vest over a three-year performance or service period. At December 31, 2018, 3.467 million shares remain available under the Omnibus Incentive Plan. While we plan to continue to issue awards pursuant to the Plan at least annually, we may choose to suspend the issuance of new awards in the future and may grant additional awards at any time including issuing special grants of restricted stock, restricted stock units, and stock options to attract and retain new and existing executives.

Stock Options

Pursuant to the Omnibus Incentive Plan, Lifeway granted 26 stock options to certain key employees effective January 1, 2016 and 24 stock options on July 1, 2016 (the “2016 options”). The 2016 options generally vest over a three-year period, on a relatively accelerated basis. The accelerated vesting reflects the landmark nature of the awards and the relative tenure of individual participants.

The following table summarizes stock option activity during the year ended December 31, 2018:

	Options			Weighted average exercise price		Weighted average remaining contractual life		Aggregate intrinsic value
Outstanding at December 31, 2017		45		$	10.45		–		–
Granted		–		$	–		–
Exercised		–		$	–		–		–
Forfeited		(4	)	$	10.73		–		–
Outstanding at December 31, 2018		41		$	10.42		7.22	$	–
Exercisable at December 31, 2018		36		$	10.42		7.23	$	–

For the years ended December 31, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $9 and $41, respectively. For the years ended December 31, 2018 and 2017 tax-related benefits of $3 and $17 were also recognized. As of December 31, 2018, the total remaining unearned compensation related to non-vested stock options was $1, which is expected to be amortized over the weighted-average remaining service period of 0.50 years.

We measure the fair value of stock options using the Black-Scholes option pricing model. The expected term of options granted was based on the weighted average time of vesting and the end of the contractual term. We utilized this simplified method as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

The following assumptions were used for the 2016 stock option grants:

Risk free interest rate	1.00 - 1.11%
Expected dividend yield		0.27%
Expected volatility		38.96 - 39.94%
Expected term (years)		5.03 - 5.88

Restricted Stock Awards

Lifeway’s Board granted 20 Restricted Stock Awards (“RSAs”) to certain non-employee directors in June 2018 vesting over a three-year service period. We also approved awards of 16 RSA’s to employees during 2018. An RSA represents the right to receive one share of common stock in the future. RSAs have no exercise price.

The following table summarizes RSA activity during the year ended December 31, 2018:

	RSA’s
Outstanding at December 31, 2017		–
Granted		36
Shares issued upon vesting		(2	)
Forfeited		(9	)
Outstanding at December 31, 2018		25
Weighted average grant date fair value per share outstanding	$	4.77

We expense RSA’s over the service period. For the years ended December 31, 2018 and 2017 total pre-tax stock-based compensation expense recognized in the consolidated statements of operations was $47 and $18, respectively. For the years ended December 31, 2018 and 2017 tax-related benefits of $13 and $7, respectively, were also recognized. As of December 31, 2018, the total remaining unearned compensation related to non-vested RSA’s was $81, which is expected to be amortized over the weighted-average remaining service period of 1.32 years.

Long-Term Incentive Compensation

Lifeway established a long-term incentive-based compensation program for fiscal year 2017 (the “2017 Plan”) for certain senior executives and key employees (the “participants”). We established a similar plan for participants for fiscal year 2018 (the “2018 Plan”). Under both the 2017 Plan and the 2018 Plan, long-term incentive compensation is based on Lifeway’s achievement of certain sales and adjusted EBITDA performance levels versus respective targets established by the Board for each fiscal year.

Under the 2017 Plan, collectively the participants had the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,025 depending on Lifeway’s performance levels compared to the respective targets and the senior executive’s performance compared to their individual objectives. The equity portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2017 grant dates. For the year ended December 31, 2018, $636 was expensed under the 2017 Plan as stock-based compensation expense in the consolidated statements of operations. For the year ended December 31, 2017, incentive compensation earned by participants and expensed under the plan was $3,589 of which $1,610 will be settled through the issuance of stock, subject to vesting, and $1,979 will be settled in cash. For the year ended December 31, 2017, incentive compensation recognized in the consolidated statement of operations under the 2017 Plan was $2,516. As of December 31, 2018, the total remaining unearned compensation related to the 2017 Plan was $336, of which $287 and $49 is expected to be recognized in 2019 and 2020, respectively, subject to vesting.

Under the 2018 Plan, collectively the participants have the opportunity to earn cash and equity-based incentive compensation in amounts ranging from $0 to $11,200 depending on Lifeway’s performance levels compared to the respective targets and the senior executive’s performance compared to their individual objectives. The equity portion of the incentive compensation is payable in restricted stock that vests one-third in each of the three years from the 2018 grant dates. For the year ended December 31, 2018, $76 was expensed under the 2018 Plan as cash bonus expense in the consolidated statements of operations. There were no equity-based incentive earnings under the 2018 plan during the year ended December 31, 2018.

Retirement Benefits

Lifeway has a defined contribution plan which is available to substantially all full-time employees. Under the terms of the plan we match employee contributions under a prescribed formula. For the years ended December 31, 2018 and 2017 total contribution expense recognized in the consolidated statements of operations was $417 and $376, respectively.