Stock-Based Compensation

3 Months Ended

Apr. 04, 2023

9. Stock-Based Compensation

We maintain stock-based incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to staff members, consultants and non-employee directors.

The following table presents information related to stock-based compensation, net of forfeitures (in thousands):


	Thirteen		Thirteen
	Weeks Ended		Weeks Ended
	April 4, 2023		March 29, 2022

Labor expenses	$	2,362	$	2,190
Other operating costs and expenses		75		76
General and administrative expenses		3,465		3,252
Total stock-based compensation		5,902		5,518
Income tax benefit		1,474		1,355
Total stock-based compensation, net of taxes	$	4,428	$	4,163

Capitalized stock-based compensation ⁽¹⁾	$	42	$	57

(1)

It is our policy to capitalize the portion of stock-based compensation costs for our internal development department that relates to capitalizable activities such as the design and construction of new restaurants, remodeling existing locations and equipment installation. Capitalized stock-based compensation is included in property and equipment, net on the condensed consolidated balance sheets.

Stock Options

The weighted-average fair value at the grant date for options issued during the first quarter of fiscal 2023 was $15.76 per share. The fair value of options issued was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions: (a) an expected option term of 6.7 years, (b) expected stock price volatility of 45.2%, (c) a risk-free interest rate of 4.0% and (d) a dividend yield on our stock of 2.7%. We did not issue any stock options during the first quarter of fiscal 2022. Stock option activity during the thirteen weeks ended April 4, 2023 was as follows:


				Weighted-
				Average
		Weighted-		Remaining
		Average		Contractual	Aggregate
	Shares	Exercise Price		Term	Intrinsic Value ⁽¹⁾
	(In thousands)	(Per share)		(In years)	(In thousands)
Outstanding at January 3, 2023	1,685	$	46.11	4.2	$	0
Granted	40		40.42
Exercised	—		—
Forfeited or cancelled	(175)		48.01
Outstanding at April 4, 2023	1,550	$	45.75	4.5	$	0

Exercisable at April 4, 2023	1,195	$	47.11	3.9	$	0

(1)

Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal period-end date.

There were no options exercised during the first quarter of fiscal 2023. The total intrinsic value of options exercised during thirteen weeks ended March 29, 2022 was $4.9 million. As of April 4, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $2.7 million, which we expect to recognize over a weighted-average period of approximately 2.0 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during the thirteen weeks ended April 4, 2023 was as follows:


		Weighted-
		Average
	Shares	Fair Value
	(In thousands)	(Per share)
Outstanding at January 3, 2023	2,512	$	41.93
Granted	663		39.94
Vested	(356)		42.80
Forfeited	(33)		39.50
Outstanding at April 4, 2023	2,786	$	41.38

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant. The weighted average fair value for restricted shares and restricted share units issued during the first quarter of fiscal 2023 and 2022 was $39.94 and $39.59, respectively. The fair value of shares that vested during the thirteen weeks ended April 4, 2023 and March 29, 2022 was $15.2 million and $12.4 million, respectively. As of April 4, 2023, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $65.7 million, which we expect to recognize over a weighted-average period of approximately 3.3 years.