16. Employee Stock Based Compensation

2014 Plan

On March 28, 2014, we adopted the 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) whereby equity-based awards may be granted by the Board to eligible non-employee directors, selected officers and other employees, advisors and consultants of ours. On May 7, 2014, our stockholders approved the 2014 Plan.

2014 Omnibus Equity Incentive Plan

 

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total number of shares of common stock available for grant thereunder, 1,500,000,

 

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sets forth the types of awards eligible under the plan, including issuances of options, share appreciation rights, restricted shares, restricted share units, share bonuses, other share-based awards and cash awards, and

 

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set forth 1,500,000 as the maximum number of shares that may be made subject to awards in any calendar year to any “covered employee” (within the meaning of Section 162(m) of the Internal Revenue Code).

There were 976,633 shares available for grant under the 2014 Plan at December 31, 2016.

 

2006 Plan

On June 5, 2006, we adopted the 2006 Equity Incentive Plan (the “2006 Plan”) whereby equity-based awards may be granted by the Board to eligible non-employee directors, selected officers and other employees, advisors and consultants of ours. On April 6, 2010, our stockholders approved the PGT Innovations, Inc. (formerly PGT, Inc.) Amended and Restated 2006 Equity Incentive Plan (the “Amended and Restated 2006 Equity Incentive Plan”). With the adoption of the 2014 Plan effective on March 28, 2014, no further shares will be granted and, therefore, no shares are available under the 2006 Plan.

New Issuances

During 2016, we issued a total of 292,110 shares of restricted stock awards to certain directors, executives and non-executive employees of the Company, all from the 2014 Plan. The restrictions on these awards lapse at various time periods through 2019 and had a weighted average fair value on the dates of the grants of $9.38, as described below.

On March 3, 2016, we issued 251,370 shares of restricted stock to certain executive and non-executive employees of the company. The final number of shares awarded under the issuance on March 3, 2016, is subject to adjustment based on the performance of the Company for the 2016 fiscal year and will become final after December 31, 2016. The performance criteria, as defined in the share awards, provided for a graded awarding of shares based on the percentage by which the Company meets earnings before interest and taxes, as defined, in our 2016 business plan. The percentages, ranging from less than 80% to greater than 120%, provide for the awarding of shares ranging from 0% to 150% of the target amount and only related to half of the initial March 3, 2016, issuance of 251,370 shares, or 125,685 shares. The final award is also affected by forfeitures upon the termination of a grantee’s employment with the Company. The remaining 125,685 shares from the March 3, 2016, issuance were not subject to adjustment based on any performance or other criteria. The grant date fair value of the March 3, 2016, award was $9.23.

On May 20, 2016, we issued a total of 39,004 shares of restricted stock awards to the seven board members of the Company as the non-cash portion of their annual compensation for participation on the Company’s Board of Directors. The restrictions on these awards lapse in one year, and have a weighted average fair value on date of grant of $10.32 based on the NASDAQ market price of the common stock on the close of business on the day the awards were granted.

On February 1, 2016, one member of the board received 1,736 shares of restricted stock representing the prorated non-cash portion of the board member’s annual compensation from the prior year, having been newly appointed to the board of directors on February 1, 2016. The restrictions on these awards lapsed on May 22, 2016, and had a weighted average fair value on date of grant of $9.80 based on the NASDAQ market price of the common stock on the close of business on the day the awards were granted.

The compensation cost that was charged against income for stock compensation plans was $1.8 million, $1.8 million and $1.2 million, respectively, for the years ended December 31, 2016, January 2, 2016, and January 3, 2015, and is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. We recognized $1.9 million, $3.8 million, and $6.1 million in excess income tax benefits for share-based compensation in the years ended December 31, 2016, January 2, 2016, and January 3, 2015, respectively. We currently expect to satisfy share-based awards with registered shares available to be issued.

We have not granted options since 2014. The fair value of stock options granted in 2014 were estimated using a Black-Scholes option-pricing model with the following weighted average assumptions:

2014: dividend yield of 0%, expected volatility of 51.19%, risk-free interest rate of 1.54%, and expected life of 5 years

The expected life of options granted represents the period of time that options granted are expected to be outstanding and was determined based on historical experience. The expected volatility is based on the Company’s common stock. The risk-free rate for periods within the contractual term of the options is based on U.S. Treasury yield for instruments with a maturity equal to the life of the option in effect at the time of grant.

 

Stock Options

A summary of the status of our stock options as of December 31, 2016, and changes during the year then ended, is presented below:

 

		Number of Shares				Weighted Average Exercise Price				Weighted Average Life
Outstanding at January 2, 2016			3,170,314			$	2.04
Exercised			(537,364	)		$	1.82
Forfeited/Expired			(8,000	)		$	3.25
Outstanding at December 31, 2016			2,624,950			$	2.08				3.4
Exercisable at December 31, 2016			2,606,950			$	2.03				3.4

The following table summarizes information about employee stock options outstanding at December 31, 2016, (dollars in thousands, except per share amounts):

 

Exercise Price		Remaining Contractual Life				Outstanding				Outstanding Intrinsic Value				Exercisable				Exercisable Intrinsic Value
$1.60-$2.31			3.2 Years				2,604,950			$	24,610				2,598,950			$	24,553
$11.81			7.2 Years				20,000				—				8,000				—
							2,624,950			$	24,610				2,606,950			$	24,553

 

The weighted average fair value of options granted during the year ended January 3, 2015, was $5.37. The aggregate intrinsic value of options outstanding and of options exercisable as of January 2, 2016, was $29.7 million and $29.5 million, respectively. The aggregate intrinsic value of options outstanding and of options exercisable as of January 3, 2015, was $32.5 million and $24.3 million, respectively. The total grant date fair value of options vested during the years ended December 31, 2016, January 2, 2016, and January 3, 2015, was $32 thousand, $1.2 million and $1.3 million, respectively.

For the year ended December 31, 2016, we received approximately $1.0 million in proceeds from the exercise of 537,364 options for which we recognized $1.9 million in excess tax benefits through additional paid in capital. The aggregate intrinsic value of stock options exercised during the year ended December 31, 2016, was $5.1 million. For the year ended January 2, 2016, we received $2.2 million in proceeds from the exercise of 1,033,750 options for which we recognized $3.8 million in excess tax benefits through additional paid in capital. The aggregate intrinsic value of stock options exercised during the year ended January 2, 2016, was $10.8 million. For the year ended January 3, 2015, we received $1.7 million in proceeds from the exercise of 906,573 options for which we recognized $6.1 million in excess tax benefits through additional paid in capital. The aggregate intrinsic value of stock options exercised during the year ended January 3, 2015, was $7.9 million.

Restricted Share Awards

There were 292,110 restricted share awards granted in the year ended December 31, 2016, which will vest at various time periods through 2019.

A summary of the status of restricted share awards as of December 31, 2016, and changes during the year then ended, are presented below:

 

		Number of Shares				Weighted Average Fair Value
Outstanding at January 2, 2016			342,878			$	11.19
Granted			292,110			$	9.38
Vested			(128,590	)		$	11.39
Forfeited/Performance adjustment			(80,096	)		$	10.31
Outstanding at December 31, 2016			426,302			$	10.05

As of December 31, 2016, the remaining compensation cost related to non-vested share awards was $1.0 million which is expected to be recognized in earnings straight-line over a weighted average period of 1.2 years.