Equity Compensation

12 Months Ended

Dec. 29, 2019

Equity Compensation

Equity Compensation

23. Equity Compensation

We award stock options, time-based restricted stock and performance-based restricted stock units from time to time under the Papa John’s International, Inc. 2018 Omnibus Incentive Plan. There are approximately 5.3 million shares of common stock authorized for issuance and remaining available under the 2018 Omnibus Incentive Plan as of December 29, 2019, which includes 5.3 million shares transferred from the Papa John’s International 2011 Omnibus Incentive Plan.  Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options outstanding as of December 29, 2019 generally expire ten years from the date of grant and generally vest over a three-year period.

We recorded stock-based employee compensation expense of $15.3 million in 2019, $9.9 million in 2018 and $10.4 million in 2017. The total related income tax benefit recognized in the Consolidated Statement of Operations was $3.4 million in 2019, $2.3 million in 2018 and $3.8 million in 2017. At December 29, 2019, there was $16.4 million of unrecognized compensation cost related to nonvested awards, of which the Company expects to recognize $10.8 million in 2020, $4.6 million in 2021 and $1.0 million in 2022.

Stock Options

Options exercised, which were issued from authorized shares, included 448,000 shares in 2019, 75,000 shares in 2018 and 147,000 shares in 2017. The total intrinsic value of the options exercised during 2019, 2018 and 2017 was $10.6 million, $1.5 million and $5.2 million, respectively. Cash received upon the exercise of stock options was $16.0 million, $2.7 million and $6.3 million during 2019, 2018 and 2017, respectively, and the related excess tax benefits (expense) realized were approximately $200,000, ($400,000) and $1.9 million during the corresponding periods.

Information pertaining to option activity during 2019 is as follows (number of options and aggregate intrinsic value in thousands):

				Weighted
				Average
		Weighted		Remaining
	Number	Average		Contractual	Aggregate
	of	Exercise		Term	Intrinsic
	Options	Price		(In Years)	Value
Outstanding at December 30, 2018	1,614	$	54.27
Granted	353		44.05
Exercised	(448)		35.77
Cancelled	(314)		63.72
Outstanding at December 29, 2019	1,205	$	55.67	7.17	$	13,120
Exercisable at December 29, 2019	653	$	58.48	5.90	$	5,704

The following is a summary of the significant assumptions used in estimating the fair value of options granted in 2019, 2018 and 2017:

	2019		2018		2017
Assumptions (weighted average):
Risk-free interest rate	2.5	%	2.7	%	2.0	%
Expected dividend yield	2.1	%	1.5	%	1.0	%
Expected volatility	31.2	%	27.6	%	26.7	%
Expected term (in years)	5.7		5.6		5.6

The risk-free interest rate for the periods within the contractual life of an option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield was estimated as the annual dividend divided by the market price of the Company’s shares on the date of grant. Expected volatility was estimated using the Company’s historical share price volatility for a period similar to the expected life of the option.

Options granted generally vest in equal installments over three years and expire ten years after grant. The expected term for these options represents the period of time that options granted are expected to be outstanding and was calculated using historical experience.

The weighted average grant-date fair values of options granted during 2019, 2018 and 2017 was $11.69, $15.27 and $19.88, respectively. The Company granted options to purchase 353,000, 456,000 and 315,000 shares in 2019, 2018 and 2017, respectively.

Restricted Stock

We granted shares of restricted stock that are time-based and generally vest in equal installments over three years  (212,000 in 2019, 260,000 in 2018 and 73,000 in 2017). Upon vesting, the shares are issued from treasury stock. These restricted shares are intended to focus participants on our long-range objectives, while at the same time serving as a retention mechanism. We consider time-based restricted stock awards to be participating securities because holders of such shares

have non-forfeitable dividend rights. We declared dividends totaling $310,000 ($0.90 per share) in 2019, $185,000 ($0.90 per share) in 2018 and $128,000 ($0.85 per share) in 2017 to holders of time-based restricted stock.

During 2019, we granted 113,000 restricted stock units that are time-based and vest over a period of one to three years.  Upon vesting, the units are issued from treasury stock.  Total dividends declared for these awards were insignificant to the results of our operations.

Additionally, we granted stock settled performance-based restricted stock units to executive management (89,000 units in 2019, 70,000 units in 2018, and 13,000 units in 2017).  

The 2019 performance-based restricted stock units require the achievement of certain performance factors, which consist of the Company’s Total Shareholder Return (“TSR”) relative to a predetermined peer group.  The grant-date fair value of the performance-based restricted stock units was determined through the use of a Monte Carlo simulation model.

The following is a summary of the significant assumptions used in estimating the fair value of the performance-based restricted stock units granted in 2019:

	2019
Assumptions:
Risk-free interest rate	2.5 %
Expected volatility	33.9 %

The risk-free interest rate for the periods within the contractual life of the performance-based restricted stock unit is based on the U.S. Treasury yield curve in effect at the time of grant.  Expected volatility was estimated using the Company’s historical share price volatility for a period similar to the expected life of the performance-based restricted stock unit.

The performance-based restricted stock units granted in 2019 vest over three years (cliff vest), expire ten years after grant, and are expensed over the performance period.  The weighted average grant-date fair value of performance-based restricted stock units granted during 2019 was $44.95.

In 2018 and 2017, the Company granted performance-based restricted stock awards under a three-year cliff vest, and the vesting of the awards is dependent upon the Company’s achievement of a compounded annual growth rate of earnings per share and the achievement of certain sales and unit growth metrics. Upon vesting, the shares are issued from authorized shares.

The fair value of time-based restricted stock and performance-based restricted stock units is based on the market price of the Company’s shares on the grant date. Information pertaining to these awards during 2019 is as follows (shares in thousands):

		Weighted
		Average
		Grant-Date
	Shares	Fair Value
Total as of December 30, 2018	370	$	59.84
Granted	414		46.14
Forfeited	(74)		51.31
Vested	(94)		62.45
Total as of December 29, 2019	616	$	50.90