10. ASSOCIATE BENEFIT PLANS

The Company accounts for all share-based payments in accordance with ASC 718. Stock‑based compensation expense included in operating expenses for the fiscal years ended September 1, 2018, September 2, 2017 and September 3, 2016 was as follows:


	For the Fiscal Years Ended
	September 1,		September 2,		September 3,
	2018		2017		2016
Stock options	$	4,534	$	4,369	$	4,382
Restricted share awards		2,856		4,399		6,112
Restricted stock units		7,281		4,872		3,205
Associate Stock Purchase Plan		263		285		286
Total		14,934		13,925		13,985
Deferred income tax benefit		(4,376)		(5,292)		(5,206)
Stock-based compensation expense, net	$	10,558	$	8,633	$	8,779

Stock Compensation Plans

2015 Omnibus Incentive Plan

At the Company’s annual meeting of shareholders held on January 15, 2015, the shareholders approved the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (“2015 Omnibus Plan”). The 2015 Omnibus Plan replaced the Company’s 2005 Omnibus Incentive Plan (the “Prior Plan”) and, beginning January 15, 2015, all awards are granted under the 2015 Omnibus Plan. Awards under the 2015 Omnibus Plan may be made in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, other share-based awards, and performance cash, performance shares or performance units. All outstanding awards under the Prior Plan will continue to be governed by the terms of the Prior Plan. Upon approval of the 2015 Omnibus Plan, the maximum aggregate number of shares of common stock authorized to be issued under the 2015 Omnibus Plan was 5,217 shares, of which 3,404 authorized shares of common stock were remaining as of September 1, 2018.

Stock Options

A summary of the status of the Company’s stock options at September 1, 2018 and changes during the fiscal year then ended is presented in the table and narrative below:


	2018
	Shares	Weighted-Average Exercise Price
Outstanding - beginning of year	1,743	$	70.88
Granted	436		79.60
Exercised	(342)		70.96
Canceled/Forfeited	(77)		72.45
Outstanding - end of year	1,760	$	72.96
Exercisable - end of year	666	$	73.96

The total intrinsic value of options exercised during the fiscal years ended September 1, 2018, September 2, 2017 and September 3, 2016 was $7,516, $9,474, and $3,129, respectively. The unrecognized share-based compensation cost related to stock option expense at September 1, 2018 was $7,529 and will be recognized over a weighted average of 2.1 years.

Stock option awards outstanding under the Company’s incentive plans have been granted at exercise prices that are equal to the market value of its common stock on the date of grant. Such options generally vest over a period of four years and expire at seven years after the grant date. The Company recognizes compensation expense ratably over the vesting period, net of estimated forfeitures. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input of both subjective and objective assumptions as follows:

Expected Term — The estimate of expected term is based on the historical exercise behavior of grantees, as well as the contractual life of the option grants.

Expected Volatility — The expected volatility factor is based on the volatility of the Company's common stock for a period equal to the expected term of the stock option.

Risk-free Interest Rate — The risk-free interest rate is determined using the implied yield for a traded zero-coupon U.S. Treasury bond with a term equal to the expected term of the stock option.

Expected Dividend Yield — The expected dividend yield is based on the Company's historical practice of paying quarterly dividends on its common stock.

The Company’s weighted-average assumptions used to estimate the fair value of stock options granted during the fiscal years ended September 1, 2018, September 2, 2017, and September 3, 2016 were as follows:


		2018			2017			2016
Expected life (in years)		4.0			4.1			3.9
Risk-free interest rate		1.87	%		1.16	%		1.09	%
Expected volatility		22.1	%		20.5	%		21.8	%
Expected dividend yield		2.30	%		2.40	%		2.40	%
Weighted-Average Grant-Date Fair Value	$	12.25		$	9.29		$	8.03

The following table summarizes information about stock options outstanding and exercisable at September 1, 2018:



Range of Exercise Prices	Number of Options Outstanding at September 1, 2018	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Intrinsic Value		Number of Options Exercisable at September 1, 2018	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price		Intrinsic Value
$ 58.90 – $ 69.46	464	3.9	$	59.90	$	11,869	213	3.5	$	61.08	$	5,188
69.47 – 72.23	460	5.2		71.33		6,501	99	5.2		71.33		1,398
72.24 – 81.76	578	5.0		80.25		3,032	171	2.2		81.75		637
81.77 – 83.03	258	3.1		83.02		635	183	3.1		83.03		450
	1,760	4.5	$	72.96	$	22,037	666	3.3	$	73.96	$	7,673

Restricted Stock Awards

A summary of the non-vested restricted share awards (“RSA”) granted under the Company’s incentive plans for the fiscal year ended September 1, 2018 is as follows:


	2018
	Shares		Weighted-Average Grant-Date Fair Value
Non-vested restricted share awards at the beginning of the year	160	$	80.49
Granted	—		—
Vested	(91)		79.23
Canceled/Forfeited	(6)		82.43
Non-vested restricted share awards at the end of the year	63	$	81.98

The fair value of each RSA is the closing stock price on the NYSE of the Company’s Class A common stock on the date of grant. Upon vesting, a portion of the RSA may be withheld to satisfy the minimum statutory withholding taxes. The remaining RSAs will be settled in shares of the Company’s Class A common stock after the vesting period. The fair value of shares vested during the fiscal years ended September 1, 2018, September 2, 2017 and September 3, 2016 was $7,222, $7,357 and $7,518, respectively. The unrecognized compensation cost related to the non-vested RSAs at September 1, 2018 is $1,920 and will be recognized over a weighted-average period of 0.9 years.

Restricted Stock Units

A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity for the fiscal year ended September 1, 2018 is as follows:


	2018
	Shares		Weighted-Average Grant-Date Fair Value
Non-vested restricted stock unit awards at the beginning of the year	313	$	66.66
Granted	175		81.57
Vested	(81)		66.75
Canceled/Forfeited	(30)		71.60
Non-vested restricted stock unit awards at the end of the year	377	$	73.18

The fair value of each RSU is the closing stock price on the NYSE of the Company’s Class A common stock on the date of grant. Upon vesting, a portion of the RSU award may be withheld to satisfy the minimum statutory withholding taxes. The remaining RSUs will be settled in shares of the Company’s Class A common stock after the vesting period. These awards accrue dividend equivalents on outstanding units (in the form of additional stock units) based on dividends declared on the Company’s Class A common stock and these additional RSUs are subject to the same vesting periods as the RSUs in the underlying award. The dividend equivalents are not included in the RSU table above. The unrecognized compensation cost related to the RSUs at September 1, 2018 was $21,158 and is expected to be recognized over a period of 3.2 years.

Associate Stock Purchase Plan

The Company has established a qualified Associate Stock Purchase Plan, the terms of which allow for eligible associates (as defined in the Associate Stock Purchase Plan) to participate in the purchase of up to a maximum of five shares of the Company’s Class A common stock at a price equal to 90% of the closing price at the end of each stock purchase period. On January 7, 2009, the shareholders of the Company approved an increase to the authorized but unissued shares of the Class A common stock of the Company reserved for sale under the Associate Stock Purchase Plan from 800 to 1,150 shares. On January 15, 2015, the shareholders of the Company approved an increase to the authorized but unissued shares of the Class A common stock of the Company reserved for sale under the Associate Stock Purchase Plan from 1,150 to 1,500 shares. As of September 1, 2018, approximately 126 shares remain reserved for issuance under this plan. Associates purchased approximately 57 shares of common stock during both fiscal years 2018 and 2017 at an average per share price of $78.65 and $74.81, respectively.

Savings Plan

The Company maintains a defined contribution plan with both a profit sharing feature and a 401(k) feature which covers all associates who have completed at least one month of service with the Company. For fiscal years 2018, 2017, and 2016, the Company contributed $7,730, $7,048 and $6,594, respectively, to the plan. The Company contributions are discretionary.