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Share-Based Payment Arrangements
 12 Months Ended
Dec. 29, 2018
Share-Based Payment Arrangements
(10) Share-Based Payment Arrangements
As of December 29, 2018, the Company had two employee equity incentive plans, the 2002 employee stock option and stock incentive plan (the “ESOSIP”) and the 2011 equity incentive plan (the “2011 EIP”). No further grants can be made under the ESOSIP. The Company also has a stock compensation plan for members of its Board of Directors, the Amended and Restated 2013 Directors Stock Compensation Plan (as amended and restated as of May 17, 2016, the “2013 DSCP”). 6,000,000 shares of the Company’s Common Stock were authorized for issuance under the 2011 EIP and 115,000 shares of the Company’s Common Stock were authorized for issuance under the 2013 DSCP. The ESOSIP, 2011 EIP and 2013 DSCP are each referred to herein as a “Plan,” and, collectively, as the “Plans.” Amounts recognized in the financial statements with respect to these Plans are as follows (in thousands):
 
 
 
Fiscal Years
 
 
 
2018
 
 
2017
 
 
2016
 
Total cost of the Plans during the period
 
$
18,256
 
 
$
7,721
 
 
$
2,747
 
Amount of related income tax benefit recognized during the period
 
 
(6,610
)
 
 
(3,285
)
 
 
(1,238
)
Net cost of the Plans during the period
 
$
11,646
 
 
$
4,436
 
 
$
1,509
 
Included in income tax benefits recognized in the fiscal years ended December 29, 2018 and December 30, 2017 were income tax benefits of $84,000 and $339,000, respectively, recognized on disqualifying dispositions of the Company’s Common Stock by employees who obtained shares of Common Stock through exercises of incentive stock options. Also included in income tax benefits recognized in the fiscal years ended December 29, 2018 and December 30, 2017 were excess tax benefits from stock-based awards of $2,060,000 and $1,299,000, respectively.
As of December 29, 2018, there were 72,742 shares of the Company’s Common Stock reserved for issuance under the 2013 DSCP and 4,436,874 shares of the Company’s Common Stock reserved for issuance in the aggregate under the ESOSIP and 2011 EIP.
 
Restricted Stock Units
The following table summarizes information regarding the Company’s outstanding restricted stock unit (“RSU”) awards with either a performance condition or a market condition under the Plans:
 
 
 
Number of

RSUs
 
 
Weighted Average

Grant Date

Fair Value
 
Outstanding at December 26, 2015
 
 
444,157
 
 
$
51.10
 
Granted
 
 
79,948
 
 
$
51.58
 
Vested
 
 
(81,344
)
 
$
53.08
 
Forfeited
 
 
(64,523
)
 
$
52.99
 
Outstanding at December 31, 2016
 
 
378,238
 
 
$
50.46
 
Granted
 
 
67,913
 
 
$
76.81
 
Forfeited
 
 
(58,779
)
 
$
46.00
 
Outstanding at December 30, 2017
 
 
387,372
 
 
$
55.75
 
Granted
 
 
65,824
 
 
$
95.94
 
Vested
 
 
(67,971
)
 
$
53.92
 
Forfeited
 
 
(92,880
)
 
$
52.36
 
Outstanding at December 29, 2018
 
 
292,345
 
 
$
66.31
 
During fiscal years 2016, 2017 and 2018 the Company granted RSUs with a performance condition. During fiscal year 2018, the Company also issued RSUs with a market condition, as further described below.
RSUs with a performance condition granted on February 2, 2018 may vest on January 31 of 2021, 2022 and 2023. RSUs with a performance condition granted on February 2, 2017 may vest on January 31 of 2020, 2021 and 2022. RSUs with a performance condition granted on January 29, 2016 may vest on January 31 of 2019, 2020 and 2021. Except for the February 2, 2018 grant, RSUs with a performance condition vest based on growth in operating income and diluted earnings per share from continuing operations attributable to Landstar System Inc. and subsidiary as compared to a base year, being the year immediately preceding the year of grant. RSUs with a performance condition granted on February 2, 2018 vest based on growth in operating income and 
pre-tax
 income per share from continuing operations attributable to Landstar System, Inc. and subsidiary as compared to the results from the 2017 fiscal year. At the time of grant, the target number of common shares available for issuance under the February 2, 2018, February 2, 2017, January 29, 2016 and January 27, 2015 grants equals 100% of the number of RSUs granted, and the maximum number of common shares available for issuance under the February 2, 2018, February 2, 2017, January 29, 2016 and January 27, 2015 grants equals 200% of the number of RSUs granted. In the event actual results exceed the target, the number of shares that will be granted will exceed the number of RSUs granted. The maximum number of common shares available for issuance under grants made prior to 2015 equals 100% of the number of RSUs granted. The fair value of an RSU with a performance condition was determined based on the market value of the Company’s Common Stock on the date of grant, discounted for lack of marketability for a minimum post-vesting holding requirement. The discount rate due to lack of marketability used for RSU award grants with a performance condition for all periods was 7%. With respect to RSU awards with a performance condition, the Company reports compensation expense over the life of the award based on an estimated number of units that will vest over the life of the award, multiplied by the fair value of an RSU at the time of grant.
On April 24, 2018, the Company granted 9,324 RSUs that vest based on a market condition. These RSUs may vest on June 30 of 2022, 2023 and 2024 based on the Company’s total shareholder return (“TSR”) compound annual growth rate over the vesting periods, adjusted to reflect dividends (if any) paid during such periods and capital adjustments as may be necessary. The maximum number of common shares available for issuance under the April 24, 2018 grant equals 150% of the number of RSUs granted. The fair value of this RSU award was determined at the time of grant based on the expected achievement of the market condition at the end of each vesting period. With respect to these RSU awards, the Company reports compensation expense ratably over the life of the award based on the estimated number of units that will vest over the life of the award, multiplied by the fair value of the RSU at the time of grant. Previously recognized compensation cost would be reversed only if the employee terminated employment prior to completing the requisite service period.
The Company recognized approximately $15,985,000, $5,849,000 and $849,000 of share-based compensation expense related to RSU awards in fiscal years 2018, 2017 and 2016, respectively. As of December 29, 2018, there was a maximum of $18.5 million of total unrecognized compensation cost related to RSU awards granted under the Plans with an expected average remaining life of approximately 3.3 years. With respect to RSU awards with a performance condition, the amount of future compensation expense to be recognized will be determined based on future operating results.
Stock Options
The Company did not grant any stock options during its 2016, 2017 or 2018 fiscal years. Options outstanding under the Plans generally become exercisable in either five equal annual installments commencing on the first anniversary of the date of grant or 100% on the fifth anniversary from the date of grant, subject to acceleration in certain circumstances. All options granted under the Plans expire on the tenth anniversary of the date of grant. Under the Plans, the exercise price of each option equals the fair market value of the Company’s Common Stock on the date of grant.
The fair value of each option grant on its grant date was calculated using the Black-Scholes option pricing model. The Company utilized historical data, including exercise patterns and employee departure behavior, in estimating the term that options will be outstanding. Expected volatility was based on historical volatility and other factors, such as expected changes in volatility arising from planned changes to the Company’s business, if any. The risk-free interest rate was based on the yield of zero coupon U.S. Treasury bonds for terms that approximated the terms of the options granted.
The following table summarizes information regarding the Company’s outstanding stock options under the Plans:
 
 
 
Options Outstanding
 
 
Options Exercisable
 
 
 
Number of

Options
 
 
Weighted Average

Exercise Price

per Share
 
 
Number of

Options
 
 
Weighted Average

Exercise Price

per Share
 
Options at December 26, 2015
 
 
637,221
 
 
$
47.24
 
 
 
415,121
 
 
$
45.12
 
Exercised
 
 
(257,460
)
 
$
45.63
 
 
 
 
 
 
 
 
 
Forfeited
 
 
(7,200
)
 
$
53.63
 
 
 
 
 
 
 
 
 
Options at December 31, 2016
 
 
372,561
 
 
$
48.24
 
 
 
282,461
 
 
$
46.39
 
Exercised
 
 
(180,321
)
 
$
47.01
 
 
 
 
 
 
 
 
 
Forfeited
 
 
(3,200
)
 
$
52.47
 
 
 
 
 
 
 
 
 
Options at December 30, 2017
 
 
189,040
 
 
$
49.34
 
 
 
169,240
 
 
$
48.50
 
Exercised
 
 
(99,926
)
 
$
48.36
 
 
 
 
 
 
 
 
 
Options at December 29, 2018
 
 
89,114
 
 
$
50.44
 
 
 
88,114
 
 
$
50.35
 
The following tables summarize stock options outstanding and exercisable at December 29, 2018:
 
 
 
Options Outstanding
 
Range of Exercise Prices Per Share
 
Number

Outstanding
 
 
Weighted Average

Remaining Contractual

Term (years)
 
 
Weighted Average

Exercise Price

per Share
 
$35.64 - $40.00  
 
 
6,800
 
 
 
0.7
 
 
$
36.57
 
$40.01 - $45.00  
 
 
18,600
 
 
 
2.1
 
 
$
41.80
 
$45.01 - $58.06  
 
 
63,714
 
 
 
3.7
 
 
$
54.44
 
 
 
 
89,114
 
 
 
3.1
 
 
$
50.44
 
 
 
 
Options Exercisable
 
Range of Exercise Prices Per Share
 
Number

Exercisable
 
 
Weighted Average

Remaining Contractual

Term (years)
 
 
Weighted Average

Exercise Price

per Share
 
$35.64 - $40.00  
 
 
6,800
 
 
 
0.7
 
 
$
36.57
 
$40.01 - $45.00  
 
 
18,600
 
 
 
2.1
 
 
$
41.80
 
$45.01 - $56.40  
 
 
62,714
 
 
 
3.6
 
 
$
54.38
 
 
 
 
88,114
 
 
 
3.1
 
 
$
50.35
 
 
At December 29, 2018, the total intrinsic value of options outstanding was $3,989,000. At December 29, 2018, the total intrinsic value of options outstanding and exercisable was $3,952,000. The total intrinsic value of stock options exercised during fiscal years 2018, 2017 and 2016 was $6,715,000, $7,599,000 and $7,427,000, respectively.
As of December 29, 2018, there was no unrecognized compensation cost related to 
non-vested
 stock options granted under the Plans.
Non-vested
 Restricted Stock and Deferred Stock Units
The 2011 EIP provides the Compensation Committee of the Board of Directors with the authority to issue shares of Common Stock of the Company, subject to certain vesting and other restrictions on transfer (“restricted stock”).
The following table summarizes information regarding the Company’s outstanding shares of 
non-vested
 restricted stock and Deferred Stock Units (defined below) under the Plans:
 
 
 
Number of

Shares and Deferred

Stock Units
 
 
Weighted Average

Grant Date

Fair Value
 
Outstanding at December 26, 2015
 
 
18,060
 
 
$
54.36
 
Granted
 
 
26,033
 
 
$
58.53
 
Vested
 
 
(15,684
)
 
$
53.03
 
Outstanding at December 31, 2016
 
 
28,409
 
 
$
58.91
 
Granted
 
 
42,573
 
 
$
84.47
 
Vested
 
 
(16,227
)
 
$
61.50
 
Outstanding at December 30, 2017
 
 
54,755
 
 
$
78.02
 
Granted
 
 
22,803
 
 
$
113.35
 
Vested
 
 
(19,814
)
 
$
75.11
 
Forfeited
 
 
(1,757
)
 
$
71.12
 
Outstanding at December 29, 2018
 
 
55,987
 
 
$
93.66
 
The fair value of each share of 
non-vested
 restricted stock issued and Deferred Stock Unit granted under the Plans is based on the fair value of a share of the Company’s Common Stock on the date of grant. Shares of 
non-vested
 restricted stock are generally subject to vesting in three equal annual installments either on the first, second and third anniversary of the date of grant or the third, fourth and fifth anniversary of the date of the grant, or 100% on the first anniversary of the date of the grant. For restricted stock awards granted under the 2013 DSCP plan, each recipient may elect to defer receipt of shares and instead receive restricted stock units (“Deferred Stock Units”), which represent contingent rights to receive shares of the Company’s Common Stock on the date of recipient separation from service from the Board of Directors, or, if earlier, upon a change in control event of the Company. Deferred Stock Units become vested 100% on the first anniversary of the date of the grant. Deferred Stock Units do not represent actual ownership in shares of the Company’s Common Stock and the recipient will not have voting rights or other incidents of ownership until the shares are issued. However, Deferred Stock Units do contain the right to receive dividend equivalent payments prior to settlement into shares.
As of December 29, 2018, there was $3,184,000 of total unrecognized compensation cost related to 
non-vested
 shares of restricted stock and Deferred Stock Units granted under the Plans. The unrecognized compensation cost related to these 
non-vested
 shares of restricted stock and Deferred Stock Units is expected to be recognized over a weighted average period of 2.2 years.
Directors’ Stock Compensation Plan
Commencing as of the 2016 annual meeting of the stockholders of the Company (an “Annual Meeting”), Directors of the Company who are not employees of the Company (each an “Eligible Director”) are entitled under the 2013 DSCP to receive a grant of such number of restricted shares of the Company’s Common Stock or Deferred Stock Units equal to the quotient of $110,000 divided by the fair market value of a share of Common Stock on the date immediately following the date of each Annual Meeting. With respect to the 2016 Annual Meeting only, each Eligible Director who was designated as a Class III director instead received a number of shares equal to the quotient of $35,000 divided by the fair market value of a share of Common Stock. In fiscal year 2018, 4,950 restricted shares and 990 Deferred Stock Units were granted to Eligible Directors. In fiscal year 2017, 6,575 restricted shares and 1,315 Deferred Stock Units were granted to Eligible Directors. In fiscal year 2016, 7,762 restricted shares were granted to Eligible Directors. Restricted shares and Deferred Stock Units granted in 2016, 2017 and 2018 vest on the date of the next Annual Meeting. During fiscal years 2018, 2017 and 2016, $660,000, $651,000 and $591,000, respectively, of compensation cost was recorded for the grant of these restricted shares and Deferred Stock Units.