Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v3.22.4
Stockholders' Equity
 12 Months Ended
Dec. 29, 2022
Equity [Abstract]  
Stockholders' Equity Stockholders’ Equity
Common Stock
The Company has three classes of common stock: Class A, Class B, and Class C. The holders of Class A common stock, Class B common stock, and Class C common stock are entitled to share equally, on a per share basis, in dividends or other distributions. Class A common stockholders are entitled to one vote per share held. Class B and Class C common stockholders have no voting rights, except as otherwise provided by law. In the event of the voluntary liquidation or dissolution of the Company, each class of stock will share equally, on a per share basis, in all the assets of the Company that are available for distribution to stockholders.
Secondary Offerings
On August 13, 2020, certain of the Company’s stockholders completed a secondary public offering (the “August Secondary Offering”) of an aggregate of 5,686,422 shares of common stock at a price to the public of $67.60 per share. The Company did not sell any shares in the August Secondary Offering and did not receive any proceeds from the sales of shares by the selling stockholders.
On May 22, 2020, certain of the Company’s stockholders completed a secondary public offering (the “May 2020 Secondary Offering”) of an aggregate of 4,972,900 shares of common stock at a price to the public of $44.55 per share. The Company did not sell any shares in the May 2020 Secondary Offering and did not receive any proceeds from the sales of shares by the selling stockholders.
Stock Incentive Plans
On January 13, 2011, the Company adopted the 2011 Stock Option Plan (as amended, restated, supplemented or otherwise modified from time to time, the “2011 Plan”) to provide for the grant of stock options to employees (including officers), consultants and non-employee directors of the Company and its subsidiaries. Pursuant to the terms of the 2011 Plan, the Company was authorized to grant options for the purchase of up to 12,520,407 shares as of December 29, 2016 and 10,780,970 shares as of December 31, 2015. As of December 29, 2016 and December 31, 2015, there were 179,575 and 104,269 shares available for grant pursuant to awards under the 2011 Plan, respectively. The Company ceased granting awards under the 2011 Plan upon the implementation of the 2017 Plan (as defined below).
On April 13, 2017, the board of directors approved the Floor & Decor Holdings, Inc. 2017 Stock Incentive Plan (the “2017 Plan”), which was subsequently approved by the Company’s stockholders. The 2017 Plan authorizes the Company to grant options and restricted stock awards to eligible employees (including officers), consultants, and non-employee directors up to an aggregate of 5,000,000 shares of Class A common stock. As of December 29, 2022 and December 30, 2021, there were 1,745,649 and 1,926,142 shares available for grant pursuant to awards under the 2017 Plan, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718. The Company measures compensation cost for all stock-based awards at fair value on the date of grant and recognizes compensation expense, net of forfeitures, using the straight-line method over the requisite service period of awards expected to vest, which for each of the awards is the service vesting period.
The table below presents components of stock-based compensation expense within the Company’s Consolidated Statements of Operations and Comprehensive Income:
Fiscal Year Ended
in thousands December 29,
2022		 December 30,
2021		 December 31,
2020
General and administrative $ 21,665  $ 20,528  $ 16,115 
Selling and store operating 568  —  — 
Total stock-based compensation expense $ 22,233  $ 20,528  $ 16,115 
Stock Options
Stock options are granted with an exercise price equal to the closing price of the Company’s Class A common stock on the date of grant, as authorized by the Company’s board of directors or compensation committee. Options granted have contractual terms of ten years and vesting provisions ranging from one year to five years. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting.
No stock options were granted during fiscal 2022. During fiscal years 2021 and 2020, stock option award grant date fair values were estimated using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions:
Fiscal Year Ended
December 30,
2021		 December 31,
2020
Weighted average fair value per stock option $ 41.75 $ 22.27
Risk-free interest rate 0.80% 1.17%
Expected volatility 48% 39%
Expected life (in years) 5.40 5.75
Dividend yield —% —%
The Company determines the grant date fair value of stock options with assistance from a third-party valuation specialist. The risk-free interest rate is based on the term structure of interest rates at the time of the option grant and is determined using the risk-free interest rate on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Expected volatility is estimated based on the historical volatility of the Company’s Class A common stock since its initial public offering in 2017 as well as the historical volatility of the common stock of similar public entities. The Company considers various factors in determining the appropriateness of the public entities used in determining expected volatility, including the entity's life cycle stage, industry, growth profile, size, financial leverage, and products offered. To determine the expected life of the options granted, the Company relies upon a combination of the observed exercise behavior of prior grants with similar characteristics and the contractual terms and vesting schedules of the current grants. The Company estimates the dividend yield to be zero as it does not intend to pay dividends during the respective lives of the options.
The table below summarizes stock option activity for the fiscal year ended December 29, 2022:
Options Weighted
Average
Exercise
Price		 Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021 2,503,654  $ 26.81 
Exercised (352,455) 21.54 
Forfeited or expired (49,640) 52.00 
Outstanding at December 29, 2022 2,101,559  $ 27.10  4.8 $ 93,730 
Vested and exercisable at December 29, 2022 1,885,661  $ 23.08  4.5 $ 90,713 
The fair value of stock options vested during the fiscal years ended December 29, 2022, December 30, 2021, and December 31, 2020 was $7.9 million, $8.8 million, and $7.5 million, respectively. The aggregate intrinsic value of stock options exercised was $20.4 million, $126.6 million, and $135.5 million for the fiscal years ended December 29, 2022, December 30, 2021, and December 31, 2020, respectively.
The Company’s total unrecognized compensation cost related to stock options as of December 29, 2022 and December 30, 2021 was $3.3 million and $9.7 million, respectively. The unrecognized compensation cost remaining as of December 29, 2022 is expected to be recognized over a weighted average period of 1.5 years.
Restricted Stock Units
During the fiscal year ended December 29, 2022, the Company granted service-based restricted stock units (“RSUs”) to certain employees, executive officers, and non-employee directors and performance-based restricted stock units (“PSUs”) to certain executive officers that represent an unfunded, unsecured right to receive a share of the Company’s Class A common stock upon vesting. The RSUs granted during the period vest in three ratable annual installments on each of the first three anniversaries of the grant date, subject to the grantee’s continued service through the applicable vesting date. The PSUs granted during the period cliff vest after a three-year period based on the achievement of specific targets for adjusted EBIT (earnings before interest and taxes) growth and return on invested capital, subject to the grantee’s continued service through the applicable vesting date. Based on the extent to
which the performance goals are achieved, vested shares may range from 0% to 200% of the target award amount, and the Company assesses the probability of achieving these performance goals on a quarterly basis. The fair values of the service-based and performance-based restricted stock units were determined based on the closing price of the Company’s Class A common stock on the date of grant.
The following table summarizes restricted stock unit activity during the fiscal year ended December 29, 2022:
Restricted Stock Units
Service-based Performance-based
Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value
Unvested at December 31, 2021 214,778  $ 82.80  —  $ — 
Granted 283,585  91.88  36,566  95.62 
Vested (59,096) 79.87  —  — 
Forfeited (30,438) 91.55  (449) 95.62 
Unvested at December 29, 2022 408,829  $ 88.85  36,117  $ 95.62 
The total unrecognized compensation cost related to restricted stock units as of December 29, 2022 and December 30, 2021 was $26.0 million and $14.0 million, respectively. The unrecognized compensation cost remaining as of December 29, 2022 is expected to be recognized over a weighted average period of 2.2 years.
The total fair value of restricted stock units that vested during the fiscal years ended December 29, 2022 and December 30, 2021 was $5.3 million and $2.9 million, respectively. There were no restricted stock units that vested during the fiscal year ended December 31, 2020.
Restricted Stock Awards
The following table summarizes restricted stock award activity during the fiscal year ended December 29, 2022 (no restricted stock awards were granted during fiscal 2022):
Restricted Stock Awards
Service-based Performance-based Total shareholder return
Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value
Unvested at December 31, 2021 144,725  $ 62.92  160,315  $ 57.70  104,456  $ 44.28 
Vested (25,204) 78.50  —  —  —  — 
Forfeited (16,195) 62.53  (25,997) 57.70  (16,939) 44.28 
Unvested at December 29, 2022 103,326  $ 59.18  134,318  $ 57.70  87,517  $ 44.28 
The fair value of performance-based and service-based restricted stock awards is based on the closing market price of the Company's Class A common stock on the date of grant. The fair value of the total shareholder return awards is estimated on grant date using the Monte Carlo valuation method. Compensation cost for restricted stock awards is recognized using the straight-line method over the requisite service period, which for each of the awards is the service vesting period. As of December 29, 2022 and December 30, 2021, total unrecognized compensation cost related to unvested restricted stock awards was $3.2 million and $10.9 million, respectively. The unrecognized compensation cost remaining as of December 29, 2022 is expected to be recognized over a weighted average period of 1.2 years.
The total fair value of restricted stock awards that vested during the fiscal years ended December 29, 2022, December 30, 2021, and December 31, 2020 was $2.2 million, $1.4 million, and $0.5 million, respectively.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan (the “ESPP”) is a tax-qualified plan under Section 423 of the Internal Revenue Code and permits eligible employees to purchase shares of the Company’s common stock through payroll deductions, subject to certain limitations. The Company has designated a purchase price per share of common stock acquired under the ESPP at the lesser of 90% of the lower of the fair market value of its common stock on either the first or last trading day of each six-month offering period. There are 1,500,000 shares of the Company’s Class A common stock, par value $0.001 per share, approved for issuance under the ESPP, 62,274, 46,273, and 56,389 of which were issued during fiscal years 2022, 2021, and 2020, respectively. During fiscal years 2022, 2021, and 2020, the Company recognized stock-based compensation expense related to the ESPP totaling $1.2 million, $1.0 million, and $0.7 million, respectively.
Deferred Compensation Plan
In October 2019, the Company adopted the 2019 Director Nonqualified Excess Plan (the “Plan”) to provide for certain employees or independent contractors of the employer (including directors) to elect to defer compensation, including restricted stock grants, until they separate from service. The Plan is intended to be a nonqualified deferred compensation plan that complies with the provisions of Section 409A of the Internal Revenue Code and is effective for compensation starting in fiscal 2020. Deferrals and related compensation expense under the Plan were immaterial in fiscal years 2022, 2021, and 2020.