Red Robin Gourmet Burgers, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock Incentive Plans

Stock Incentive Plans

12 Months Ended

Dec. 25, 2016

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

In 2007, the Company’s stockholders approved the 2007 Performance Incentive Plan which was amended and restated in 2008 and 2011 (the “2007 Stock Plan”). The 2007 Stock Plan authorizes the issuance of stock options, stock appreciation rights (SARs), restricted stock, stock variable compensation and other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock, as well as cash variable compensation awards pursuant to the plan. Persons eligible to receive awards under the 2007 Stock Plan include officers and employees of the Company and any of the Company’s subsidiaries, directors of the Company, and certain consultants and advisors to the Company or any of its subsidiaries. The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2007 Stock Plan is 2,074,600 shares. Vesting of the awards under the 2007 Stock Plan is determined at the date of grant by the plan administrator. Each award granted under the 2007 Stock Plan fully vests, becomes exercisable and/or payable, as applicable, upon a change in control event. However, unless the individual award agreement provides otherwise, with respect to executive and certain other high level officers of the Company, upon the occurrence of a change in control, no award will vest unless such officers’ employment with the Company is terminated by the Company without cause during the two-year period following such change in control event. Each award expires on such date as shall be determined at the date of grant; however, the maximum term of options, SARs, and other rights to acquire common stock under the plan is ten years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. The 2007 Stock Plan terminates on April 4, 2021, unless terminated earlier by the Company’s board of directors. As of December 25, 2016, options to acquire a total of 408,445 shares of the Company’s common stock remained outstanding under this plan of which 196,724 were vested. As of December 25, 2016, no options to acquire the Company’s common stock remained outstanding under any previous stock incentive plans.

Total stock-based compensation costs recognized in 2016, 2015, and 2014 were $4.5 million, $4.7 million, and $4.2 million, with related income tax benefits of $0.4 million, $2.0 million, and $1.7 million. As of December 25, 2016, there was $4.3 million of total unrecognized compensation cost, excluding estimated forfeitures, which is expected to be recognized over the weighted average remaining vesting period of approximately 1.4 years for stock options and 1.1 years for the restricted stock units. As of December 25, 2016, all performance-based stock units and restricted stocks were vested.

Stock Options

The tables below summarize the status of the Company’s stock option plans (in thousands, except per share data and exercise price):



	Stock Options
	Shares		Weighted Average Exercise Price
Outstanding, December 27, 2015	395		$	46.04
Granted	160		60.57
Forfeited/expired	(54	)	65.23
Exercised	(93	)	25.82
Outstanding, December 25, 2016	408		$	53.82



	Shares	Weighted Average Exercise Price		Weighted Average Remaining Years of Contractual Life	Aggregate Intrinsic Value
Outstanding as of December 25, 2016	408	$	53.82	6.89	$	3,922
Vested and expected to vest as of December 25, 2016⁽¹⁾	383	$	53.26	6.74	$	3,865
Exercisable as of December 25, 2016	197	$	42.86	5.01	$	3,472

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(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options.

The estimated fair value of each option granted is calculated using the Black-Scholes multiple option-pricing model. The average assumptions used in the model for the fiscal years ended December 25, 2016, December 27, 2015, and December 28, 2014 were as follows:



	2016			2015			2014
Risk-free interest rate	1.2		%	1.4		%	1.7		%
Expected years until exercise	4.5			4.8			5.7
Expected stock volatility	39.0		%	40.6		%	44.6		%
Dividend yield	—		%	—		%	—		%
Weighted average Black-Scholes fair value per share at date of grant	$	20.45		$	29.71		$	30.70
Total intrinsic value of options exercised (in thousands)	$	2,624		$	4,414		$	3,954

The risk-free interest rate was based on the rate for zero coupon U.S. Government issues with a remaining term similar to the expected life. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends and team member exercise patterns. The expected stock price volatility represents an average of the Company’s historical volatility measured over a period approximating the expected life. The dividend yield assumption is based on the Company’s history and expectations of dividend payouts.

Time-Based RSUs

During 2016, 2015, and 2014, the Company issued time-based restricted stock units (RSUs) to certain employees as permitted under the 2007 Stock Plan. The Company can grant RSUs to its directors, executive officers and other key employees. The RSUs granted to employees typically vest in equal installments over four years. For the Company’s board of directors, RSUs granted in 2014 vest in equal installments over three years, while RSUs granted in 2015 and 2016 vest in full on the one-year anniversary date of grant date. Upon vesting, one share of the Company’s common stock is issued for each RSU. The fair value of each RSU granted is equal to the market price of the Company’s stock at the date of grant.

The table below summarizes the status of the Company’s time-based RSUs under the 2007 Stock Plan (shares in thousands):



	Restricted Stock Units
	Shares		Weighted Average Grant-Date Fair Value (per share)
Outstanding, December 27, 2015	75		$	67.74
Awarded	60		57.08
Forfeited	(15	)	69.14
Vested	(38	)	64.65
Outstanding, December 25, 2016	82		$	61.16

Long-Term Cash Incentive Plan

In 2011, the Company began a long-term cash incentive program. The long-term cash incentive plan is based on operational metrics with a three-year performance period. Compensation expense is recognized over the performance period based on the plan-to-date performance achievement. The awards cliff vest at the end of each three-year performance cycle. In 2016, the Company reversed $2.3 million of its long-term cash incentive plan liability upon determining that certain performance metrics were not probable of being achieved. In 2015 and 2014, the Company recorded $3.3 million and $0.8 million compensation expenses related to this program.

In 2016, the Company paid out $3.4 million cash awards related to achievement of the performance metrics of the 2013 long-term cash incentive plan. In 2015, the Company paid out $1.8 million cash awards related to achievement of the performance metrics of the 2012 long-term cash incentive plan. In 2014, the Company paid out $2.4 million cash awards related to achievement of the performance metrics of the 2011 long-term cash incentive plan. At December 25, 2016 and December 27, 2015, a $0.7 million and $6.3 million long-term cash incentive plan liability was included in Accrued payroll and payroll-related liabilities in the accompanying Consolidated Balance Sheets.