Associate Benefit Plans

12 Months Ended

Sep. 03, 2022

12. ASSOCIATE BENEFIT PLANS

The Company accounts for all share-based payments in accordance with ASC Topic 718. Stock-based compensation expense included in Operating expenses for fiscal years 2022, 2021 and 2020 was as follows:


	For the Fiscal Years Ended
	September 3,		August 28,		August 29,
	2022		2021		2020
Stock options	$	1,261	$	2,285	$	3,645
Restricted share awards		—		—		185
Restricted stock units		14,810		13,976		12,319
Performance share units		2,883		1,233		575
Associate Stock Purchase Plan		310		227		208
Total		19,264		17,721		16,932
Deferred income tax benefit		(4,720)		(4,324)		(4,182)
Stock-based compensation expense, net	$	14,544	$	13,397	$	12,750

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 (the “2015 Omnibus Incentive Plan”). The 2015 Omnibus Incentive Plan replaced the MSC Industrial Direct Co., Inc. 2005 Omnibus Incentive Plan (the “Prior Plan”) and, beginning January 15, 2015, all awards are granted under the 2015 Omnibus Incentive Plan. Awards under the 2015 Omnibus Incentive 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 Incentive Plan, the maximum aggregate number of shares of Class A Common Stock authorized to be issued under the 2015 Omnibus Incentive Plan was 5,217 shares, of which 1,176 authorized shares of Class A Common Stock were remaining as of September 3, 2022.

Stock Options

A summary of the Company’s stock option award activity under the 2015 Omnibus Incentive Plan for fiscal year 2022 is as follows:



	Shares	Weighted-Average Exercise Price
Outstanding - beginning of year	1,130	$	76.38
Granted	—		—
Exercised	(478)		72.53
Canceled/Forfeited	(38)		83.03
Outstanding - end of year	614	$	78.96
Exercisable - end of year	551	$	78.47

The total intrinsic value of options exercised during fiscal years 2022, 2021 and 2020 was $5,855, $5,826 and $2,604, respectively. The unrecognized share-based compensation cost related to stock option expense at September 3, 2022 was $99 and will be recognized over a weighted-average period of 0.1 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 Class A 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. The Company discontinued its grants of stock options in fiscal year 2020.

Stock option awards outstanding as of September 3, 2022 had exercise prices ranging from $58.90 to $83.21. As of September 3, 2022, there were 614 stock option awards outstanding, with a weighted-average remaining contractual life of 2.2 years, a weighted-average exercise price of $78.96 and an intrinsic value of $1,121. As of September 3, 2022, there were 551 stock option awards exercisable, with a weighted-average remaining contractual life of 2.1 years, a weighted-average exercise price of $78.47 and an intrinsic value of $1,121.

Performance Share Units

In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term share-based compensation program. PSUs cliff vest after a three year performance period based on the achievement of specific performance goals as set forth in the applicable award agreement. Based on the extent to which the performance goals are achieved, vested shares may range from 0% to 200% of the target award amount.


	Shares	Weighted-Average Grant Date Fair Value
Non-vested PSUs at the beginning of the year	58	$	75.52
Granted	46		84.96
Vested	—		—
Canceled/Forfeited	(16)		77.68
Non-vested PSUs at the end of the year ⁽¹⁾	88	$	80.04

⁽¹⁾ Excludes approximately 13 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2015 Omnibus Incentive Plan.

The fair value of each PSU is the closing stock price on the New York Stock Exchange (the “NYSE”) of the Company’s Class A Common Stock on the date of grant. PSUs are expensed over the three year performance period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting PSU forfeitures and records stock-based compensation expense only for PSU awards that are expected to vest. Upon vesting, subject to the achievement of specific performance goals, a portion of the PSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs will be settled in shares of the Company’s Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs (in the form of additional stock units) based on dividends declared on the Company’s Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of the Company’s Class A Common Stock on the vesting dates of the underlying PSUs, subject to the same performance vesting requirements. The unrecognized share-based compensation cost related to the PSUs

at September 3, 2022 was $3,686 and is expected to be recognized over a weighted-average period of 1.5 years.

Restricted Stock Units

A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan for fiscal year 2022 is as follows:



	Shares		Weighted-Average Grant Date Fair Value
Non-vested RSUs at the beginning of the year	524	$	76.69
Granted	177		84.73
Vested	(191)		76.71
Canceled/Forfeited	(62)		77.75
Non-vested RSUs at the end of the year ⁽¹⁾	448	$	79.71
⁽¹⁾Excludes approximately 60 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2015 Omnibus Incentive Plan.

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. RSUs are expensed over the vesting period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting RSU forfeitures and records stock-based compensation expense only for RSU awards that are expected to vest. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying RSUs (in the form of additional stock units) based on dividends declared on the Company’s Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying RSUs. The dividend equivalents are not included in the RSU table above. The unrecognized share-based compensation cost related to the RSUs at September 3, 2022 was $23,886 and is expected to be recognized over a weighted-average period of 2.4 years.

Associate Stock Purchase Plan

The Company has established the MSC Industrial Direct Co., Inc. Amended and Restated Associate Stock Purchase Plan (the “Associate Stock Purchase Plan”), the terms of which qualified plan 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 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 shares to 1,500 shares. As of September 3, 2022, approximately 290 shares remain reserved for issuance under the Associate Stock Purchase Plan. During fiscal years 2022 and 2021, associates purchased approximately 58 shares and 57 shares, respectively, of Class A Common Stock at an average per share price of $74.47 and $72.87, 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 2022, 2021 and 2020, the Company contributed $9,019, $7,952 and $5,491, respectively, to the plan. The Company contributions are discretionary. The Company temporarily suspended the employer matching contribution to eligible participants in the Company’s 401(k) on April 13, 2020, and the matching contribution was reinstated on September 17, 2020.