Stock-Based Compensation

12 Months Ended

Jan. 01, 2019

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

The Company’s Stock Incentive Plan (the “Plan”), as amended and restated in May of 2013, authorizes the grant of non-qualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”) and incentive bonuses to employees, officers, non-employee directors and other service providers. The Plan is administered by the Compensation Committee of the Company’s Board of Directors (the “Board”) or another committee designated by the Board, or in the absence of any such committee, the Board itself (the “administrator”). Stock options are granted at a price determined by the administrator at an exercise price that is not less than the fair market value of the underlying stock on the date of grant. The administrator may also grant SARs and RSUs with terms determined by the administrator in accordance with the Plan. All share-based awards (except for RSUs) granted under the Plan have a life of ten years. Most awards vest ratably over four years; however, some have been granted with different vesting schedules. Of the awards outstanding, none have been granted to non-employees (except those granted to non-employee members of the Board of Directors of the Company) under the Plan. At January 1, 2019, approximately 3.5 million share-based awards were available to be granted under the Plan.

Stock-based compensation expense is generally recognized on a straight-line basis over the service period of the awards. In 2018, 2017 and 2016, non-cash stock-based compensation expense of $3.0 million, $1.7 million and $2.5 million, respectively, was included in general and administrative expense. Stock-based compensation of approximately $47,000, $178,000 and $222,000 was included in capitalized internal costs in 2018, 2017 and 2016, respectively. Stock-based compensation expense also includes approximately $36,000 related to the Employee Stock Purchase Plan, see Note 11, Employee Benefit Plans.

Included in stock-based compensation expense recognized in 2016 was a $0.7 million charge for modifying the outstanding stock options granted to Kevin Reddy, who resigned from his position as the Chairman of the Board and from his position as the Company’s Chief Executive Officer in July 2016. In connection with Mr. Reddy’s termination from the Company, the Company extended the exercise period of Mr. Reddy’s vested options and, as a result, he had the right to exercise his vested options to purchase the Company’s Class A common stock through October 23, 2017. These vested options expired unexercised.

The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model. Expected volatilities are based on the Company’s historical data and implied volatility. The Company uses historical data to estimate expected employee forfeitures of stock options. The expected life of options granted is management’s best estimate using recent and expected transactions. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

The weighted-average assumptions used in the model were as follows:



	2018			2017			2016
Risk-free interest rate	2.7		%	2.0		%	1.2		%
Expected term (average in years)	6.2			6.1			5.0
Expected dividend yield	—			—			—
Expected volatility	51.0		%	39.6		%	37.0		%
Weighted-average Black-Scholes fair value per share at date of grant	$	5.11		$	1.74		$	2.85

The Company has estimated forfeiture rates that range from 0% to 17% based upon the class of employees receiving stock-based compensation in its calculation of stock-based compensation expense for the year ended January 1, 2019. These estimates are based on historical forfeiture behavior exhibited by employees of the Company.

A summary of aggregate option award activity under the Plan as of January 1, 2019, and changes during the fiscal year then ended is presented below:



	Awards		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value ⁽¹⁾(in thousands)
Outstanding—January 2, 2018	1,332,135		$	12.23
Granted	201,653		9.58
Forfeited or expired	(231,743	)	14.09
Exercised	(127,789	)	8.86
Outstanding—January 1, 2019	1,174,256		$	11.78	6.46	$	667
Vested and expected to vest	1,155,755		$	11.79	6.43	$	662
Exercisable as of January 1, 2019	713,021		$	13.91	5.14	$	163

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(1)	Aggregate intrinsic value represents the amount by which fair value of the Company’s stock exceeds the exercise price of the option as of January 1, 2019.

The weighted-average grant-date fair value of options granted during the years ended January 1, 2019, January 2, 2018 and January 3, 2017 was $5.11, $1.74 and $2.85, respectively. The intrinsic value associated with options exercised was $0.4 million, zero and $0.2 million for the fiscal years ended January 1, 2019, January 2, 2018 and January 3, 2017, respectively. The Company had 204,399, 177,491 and 271,457 options that vested during the years ended January 1, 2019, January 2, 2018 and January 3, 2017, respectively. These awards had a total estimated fair value of $1.9 million, $0.8 million and $2.7 million at the date of vesting for the years ended January 1, 2019, January 2, 2018 and January 3, 2017, respectively.

A summary of the status of the Company’s non-vested restricted share units as of January 1, 2019 and changes during the year then ended is presented below:



	Awards		Weighted- Average Grant Date Fair Value
Outstanding—January 2, 2018	328,359		$	4.52
Granted	824,251		8.51
Vested	(197,384	)	6.84
Forfeited	(47,144	)	0.01
Non-vested at January 1, 2019	908,082		$	0.01

The Company had 197,384 restricted stock units that vested during the year ended January 1, 2019. These units had a total estimated fair value of $2.2 million at the date of vesting for the year ended January 1, 2019.

As of January 1, 2019, there was $6.7 million of unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan, which is expected to be recognized over 2.75 years.