Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

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Stockholders' Equity
 12 Months Ended
Dec. 28, 2023
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.
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 equity awards, including options, restricted stock units, restricted stock awards, and other stock-based 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.
On May 10, 2023, the Company amended the 2017 Plan to authorize the Company to grant equity awards, including options, restricted stock units, restricted stock awards, and other stock-based awards to eligible employees (including officers), consultants, and non-employee directors up to an aggregate of 9,000,000 shares of Class A common stock. As of December 28, 2023 and December 29, 2022, there were 5,187,323 and 1,745,649 shares available for grant pursuant to awards under the 2017 Plan, respectively.
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 28,
2023		 December 29,
2022		 December 30,
2021
General and administrative $ 25,095  $ 21,665  $ 20,528 
Selling and store operating 2,145  568  — 
Total stock-based compensation expense $ 27,240  $ 22,233  $ 20,528 
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 years 2023 or 2022. During fiscal year 2021, 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
Weighted average fair value per stock option $ 41.75
Risk-free interest rate 0.80%
Expected volatility 48%
Expected life (in years) 5.40
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 28, 2023:
Options Weighted
Average
Exercise
Price		 Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands)
Outstanding at December 30, 2022 2,101,559  $ 27.10 
Exercised (491,056) $ 22.32 
Forfeited or expired (3,162) $ 56.55 
Outstanding at December 28, 2023 1,607,341  $ 28.51  3.9 $ 137,326 
Vested and exercisable at December 28, 2023 1,521,654  $ 26.11  3.8 $ 133,569 
The fair value of stock options vested during the fiscal years ended December 28, 2023, December 29, 2022, and December 30, 2021 was $3.0 million, $7.9 million, and $8.8 million, respectively. The aggregate intrinsic value of stock options exercised was $37.9 million, $20.4 million, and $126.6 million for the fiscal years ended December 28, 2023, December 29, 2022, and December 30, 2021, respectively.
The Company’s total unrecognized compensation cost related to stock options as of December 28, 2023 and December 29, 2022 was $1.0 million and $3.3 million, respectively. The unrecognized compensation cost remaining as of December 28, 2023 is expected to be recognized over a weighted average period of 0.9 years.
Restricted Stock Units
The Company periodically grants restricted stock units (“RSUs”) that represent an unfunded, unsecured right to receive a share of the Company’s Class A common stock upon vesting. During the fiscal year ended December 28, 2023, the Company granted RSUs to certain employees, executive officers, and non-employee directors comprised of service-based RSUs, performance-based RSUs, and total shareholder return (“TSR”) awards. Service-based RSUs vest based on the grantee’s continued service through the vesting date. The performance-based RSUs cliff vest based on (i) the Company's achievement of predetermined financial metrics at the end of a three-year performance period and (ii) the grantee’s continued service through the vesting date. Depending on the performance-based RSU grant and the extent to which the relevant performance goals are achieved, the number of common shares earned upon vesting may range from either 0% to 150% or 0% to 200% of the award granted. The TSR awards cliff vest based on (i) the Company's relative TSR compared to a specified peer group and (ii) the grantee's continued service through the vesting date. The number of common shares earned upon vesting of the TSR awards may range from 0% to 150% of the TSR awards granted with no vesting above the target awards amount if the Company’s three-year absolute TSR is negative. The Company assesses the probability of achieving all performance goals on a quarterly basis. The service periods for RSUs granted during the period varies by grantee and ranges between approximately two to four years from the grant date.
The following table summarizes restricted stock unit activity during the fiscal year ended December 28, 2023:
Restricted Stock Units
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 30, 2022 408,829  $ 88.85  36,117  $ 95.62  —  $ — 
Granted 378,839  $ 90.60  188,543  $ 90.38  58,854  $ 104.67 
Vested (150,897) $ 86.96  —  $ —  —  $ — 
Forfeited (28,631) $ 88.92  (36,117) $ 95.62  —  $ — 
Unvested at December 28, 2023 608,140  $ 90.40  188,543  $ 90.38  58,854  $ 104.67 
The grant-date fair value of service-based RSUs and performance-based RSUs is based on the closing market price of the Company’s Class A common stock on the date of grant. The grant-date fair value of TSR awards is estimated using a Monte Carlo valuation method, which included the following assumptions for TSR awards granted during the period:
Fiscal Year Ended December 28,
2023
Expected term (in years) 2.8
Risk-free interest rate 4.5  %
Expected volatility 49.5  %
Dividend yield —  %
The total unrecognized compensation cost related to restricted stock units as of December 28, 2023 and December 29, 2022 was $42.8 million and $26.0 million, respectively. The unrecognized compensation cost remaining as of December 28, 2023 is expected to be recognized over a weighted average period of 2.1 years.
The total fair value of restricted stock units that vested during the fiscal years ended December 28, 2023, December 29, 2022, and December 30, 2021 was $13.7 million, $5.3 million, and $2.9 million, respectively.
Restricted Stock Awards
The following table summarizes restricted stock award activity during the fiscal year ended December 28, 2023 (no restricted stock awards were granted during fiscal 2023):
Restricted Stock Awards
Service-based
Performance-based (1)
Total shareholder return (1)
Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value
Unvested at December 30, 2022
 103,326  $ 59.18  134,318  $ 57.70  87,517  $ 44.28 
Vested (68,543) $ 55.57  (86,656) $ 57.70  (56,461) $ 44.28 
Unvested at December 28, 2023 34,783  $ 66.30  47,662  $ 57.70  31,056  $ 44.28 
(1) The performance-based and total shareholder return restricted stock awards that vested during the period were issued at 100% of target based on achievement of the predetermined performance and total shareholder return criteria as specified in the underlying grant agreements.
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 28, 2023 and December 29, 2022, total unrecognized compensation cost related to unvested restricted stock awards was $0.7 million and $3.2 million, respectively. The unrecognized compensation cost remaining as of December 28, 2023 is expected to be recognized over a weighted average period of 0.8 years.
The total fair value of restricted stock awards that vested during the fiscal years ended December 28, 2023, December 29, 2022, and December 30, 2021 was $19.2 million, $2.2 million, and $1.4 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, 83,686, 62,274, and 46,273 of which were issued during fiscal years 2023, 2022, and 2021, respectively. During fiscal years 2023, 2022, and 2021, the Company recognized stock-based compensation expense related to the ESPP totaling $1.3 million, $1.2 million, and $1.0 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 2023, 2022, and 2021.