Shareholders' Equity and Stock-Based Compensation

12 Months Ended

Dec. 27, 2018

Stock Holders Equity And Share Based Compensation [Abstract]

Stock Holders Equity And Share Based Compensation

7. Shareholders’ Equity and Stock-Based Compensation

Shareholders may convert their shares of Class B Common Stock into shares of Common Stock at any time. Class B Common Stock shareholders are substantially restricted in their ability to transfer their Class B Common Stock. Holders of Common Stock are entitled to cash dividends per share equal to 110% of all dividends declared and paid on each share of the Class B Common Stock. Holders of Class B Common Stock are entitled to ten votes per share while holders of Common Stock are entitled to one vote per share on any matters brought before the shareholders of the Company. Liquidation rights are the same for both classes of stock.

Through December 27, 2018, the Company’s Board of Directors has approved the repurchase of up to 11,687,500 shares of Common Stock to be held in treasury. The Company intends to reissue these shares upon the exercise of stock options and for savings and profit-sharing plan contributions. The Company purchased 82,722, 28,898 and 333,827 shares pursuant to these authorizations during fiscal 2018, fiscal 2017 and fiscal 2016, respectively. At December 27, 2018, there were 2,786,700 shares available for repurchase under these authorizations.

The Company’s Board of Directors has authorized the issuance of up to 750,000 shares of Common Stock for The Marcus Corporation Dividend Reinvestment and Associate Stock Purchase Plan. At December 27, 2018, there were 435,726 shares available under this authorization.

Shareholders have approved the issuance of up to 4,937,500 shares of Common Stock under various equity incentive plans. Stock options granted under the plans to employees generally become exercisable either 40% after two years, 60% after three years, 80% after four years and 100% after five years of the date of grant, or 50% after two years, 75% after three years and 100% after four years of the date of grant, depending on the date of grant. The options generally expire ten years from the date of grant as long as the optionee is still employed with the Company.

Awarded shares of non-vested stock cumulatively vest either 25% after three years of the grant date, 50% after five years of the grant date, 75% after ten years of the grant date and 100% upon retirement, or 50% after three years of the grant date and 100% after five years of the grant date, or 50% after two years of the grant date and 100% after four years of the grant date, depending on the date of grant. The non-vested stock may not be sold, transferred, pledged or assigned, except as provided by the vesting schedule included in the Company’s equity incentive plan. During the period of restriction, the holder of the non-vested stock has voting rights and is entitled to receive all dividends and other distributions paid with respect to the stock. Non-vested stock awards and shares issued upon option exercises are issued from previously acquired treasury shares. At December 27, 2018, there were 887,191 shares available for grants of additional stock options, non-vested stock and other types of equity awards under the current plan.

Stock-based compensation, including stock options and non-vested stock awards, is expensed over the vesting period of the awards based on the grant date fair value.

The Company estimated the fair value of stock options using the Black-Scholes option pricing model with the following assumptions used for awards granted during fiscal 2018, fiscal 2017 and fiscal 2016:

	Year Ended December 27, 2018	Year Ended December 28, 2017	Year Ended December 29, 2016
Risk-free interest rate	2.70 – 2.80%	2.08 – 2.20%	1.07 – 1.64%
Dividend yield	2.10%	2.10%	2.29%
Volatility	28 – 33%	34 – 43%	29 – 48%
Expected life	6 – 8 years	7 – 8 years	4 – 9 years

Total pre-tax stock-based compensation expense was $2,691,000, $2,411,000 and $1,899,000 in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. The recognized tax benefit on stock-based compensation was $2,617,000, $1,227,000 and $840,000 in fiscal 2018, fiscal 2017 and fiscal 2016, respectively. The increase in the recognized tax benefit during fiscal 2018 was primarily due to an increase in stock options exercised where the market price was significantly greater than the grant date fair value of the stock options.

A summary of the Company’s stock option activity and related information follows:

	December 27, 2018					December 28, 2017					December 29, 2016
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
	(options in thousands)
Outstanding at beginning of period		1,629		$	18.08		1,563		$	15.94		1,707		$	15.71
Granted		336			27.59		273			31.08		185			19.45
Exercised		(478	)		14.74		(133	)		17.04		(245	)		16.23
Forfeited		(37	)		23.35		(74	)		22.37		(84	)		18.21
Outstanding at end of period		1,450			21.25		1,629			18.08		1,563			15.94
Exercisable at end of period		699		$	15.87		988		$	14.69		904		$	14.28
Weighted-average fair value of options granted during the period	$	7.87				$	10.54				$	5.94

Exercise prices for options outstanding as of December 27, 2018, ranged from $10.00 to $41.35. The weighted-average remaining contractual life of those options is 6.5 years. The weighted-average remaining contractual life of options currently exercisable is 4.6 years. There were 1,389,000 options outstanding, vested and expected to vest as of December 27, 2018 with a weighted-average exercise price of $21.00 and an intrinsic value of $24,340,000. Additional information related to these options segregated by exercise price range is as follows:

	Exercise Price Range
	$10.00 to $18.34		$18.35 to $26.99		$27.00 to $41.35
	(options in thousands)
Options outstanding		543		337		570
Weighted-average exercise price of options outstanding	$	14.01	$	19.62	$	29.11
Weighted-average remaining contractual life of options outstanding		3.8		6.8		8.8
Options exercisable		504		166		29
Weighted-average exercise price of options exercisable	$	13.68	$	19.76	$	31.93

The intrinsic value of options outstanding at December 27, 2018 was $25,048,000 and the intrinsic value of options exercisable at December 27, 2018 was $15,817,000. The intrinsic value of options exercised was $10,373,000, $1,770,000 and $1,676,000 during fiscal 2018, fiscal 2017 and fiscal 2016, respectively. As of December 27, 2018, total remaining unearned compensation cost related to stock options was $4,297,000, which will be amortized to expense over the remaining weighted-average life of 2.9 years.

A summary of the Company’s non-vested stock activity and related information follows:

	December 27, 2018					December 28, 2017					December 29, 2016
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
				Fair					Fair					Fair
	Shares			Value		Shares			Value		Shares			Value
	(options in thousands)
Outstanding at beginning of period		137		$	21.94		143		$	19.30		134		$	16.54
Granted		52			29.02		37			29.12		36			24.54
Vested		(31	)		16.41		(36	)		18.78		(25	)		12.13
Forfeited		–			–		(7	)		22.86		(2	)		18.72
Outstanding at end of period		158			18.98		137			21.94		143			19.30

The Company expenses awards of non-vested stock based on the fair value of the Company’s common stock at the date of grant. As of December 27, 2018, total remaining unearned compensation related to non-vested stock was $2,676,000, which will be amortized over the weighted-average remaining service period of 3.2 years.