NOTE 13—SHARE-BASED AWARDS

As of August 3, 2019, the Company has restricted stock awards and performance share units and stock options under three equity incentive plans: the 2002 Stock Incentive Plan; the 2004 Equity Incentive Plan, as amended; and the 2012 Equity Incentive Plan, as amended and restated. The terms of each stock-based award will be determined by the Board of Directors or the Compensation Committee. As of August 3, 2019, the Company has 1,472,441 shares authorized and available for grant under the 2012 Plan. The authorization for new grants under the 2002 Plan and 2004 Plan has expired.

Share-Based Compensation Expense

The following table presents information regarding share-based compensation expenses and the related tax impacts:



(in thousands)	2019			2018			2017
Restricted stock awards	$	21,363		$	19,872		$	16,146
Supervalu replacement awards⁽¹⁾	14,304			—			—
Performance-based share awards	3,013			5,569			8,986
Stock option awards	199			342			543
Share-based compensation expense recorded in Operating expenses	38,879			25,783			25,675
Income tax benefit	(10,458		)	(6,538		)	(10,006		)
Share-based compensation expense, net of tax	$	28,421		$	19,245		$	15,669

Share-based compensation expense recorded in Restructuring, acquisition and integration related expenses⁽²⁾	$	33,021		$	107		$	532
Income tax benefit	(8,870		)	(29		)	(214		)
Share-based compensation expense recorded in Restructuring, acquisition and integration related expenses, net of tax	$	24,151		$	78		$	318


⁽¹⁾	Amounts are derived entirely from liability classified awards.


⁽²⁾	Includes liability classified awards of $31.7 million and equity classified awards of $1.4 million for fiscal 2019. Amounts recorded in fiscal 2018 and 2017 are derived entirely from equity classified awards.

Vesting requirements for awards are generally at the discretion of the Company’s Board of Directors, or the Compensation Committee thereof, and for time vesting awards are typically four equal annual installments for employees and two equal installments for non-employee directors with the first installment on the date of grant and the second installment on the six month anniversary of the grant date. Vesting requirements for Supervalu replacement awards are typically three equal annual installments. As of August 3, 2019, there was $51.0 million of total unrecognized compensation cost related to outstanding share-based compensation arrangements (including stock options, restricted stock units, Supervalu replacement awards and performance-based restricted stock units) of which $22.5 million relates to Supervalu Replacement Awards. Unrecognized compensation cost related to Replacement Options is de minimis. This cost is expected to be recognized over a weighted-average period of 2.0 years.

Restricted Stock Awards

The fair value of restricted stock units and performance share units are determined based on the number of units granted and the quoted price of the Company’s common stock as of the grant date. The following summary presents information regarding restricted stock units, Supervalu replacement awards and performance units:



	Number of Shares		Weighted Average Grant-Date Fair Value
Outstanding at July 30, 2016	733,797		$	55.55
Granted	1,107,526		40.16
Vested	(420,098	)	50.14
Forfeited	(151,114	)	50.16
Outstanding at July 29, 2017	1,270,111		44.56
Granted	716,952		40.06
Vested	(434,730	)	47.24
Forfeited	(207,731	)	41.38
Outstanding at July 28, 2018	1,344,602		41.78
Supervalu replacement awards	4,301,233		32.50
Granted	1,665,233		23.30
Vested	(2,038,290	)	34.81
Forfeited	(852,045	)	30.83
Outstanding at August 3, 2019	4,420,733		$	31.11



(in thousands)	2019		2018		2017
Intrinsic value of restricted stock units vested	$	36,071	$	12,420	$	10,465

Performance-Based Share Awards

During fiscal 2019, the Company granted 339,282 performance share units to its executives (subject to the issuance of up to 339,282 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $22.56. These performance units are tied to fiscal 2020 performance metrics, including adjusted EBITDA and adjusted return on invested capital (“ROIC”). During fiscal 2019, 6,260 performance share units were forfeited and as of August 3, 2019, there are 333,022 performance share units outstanding that are tied to the Company’s fiscal 2020 performance.

During fiscal 2018, the Company granted 109,100 performance share units to its executives (subject to the issuance of up to 109,100 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $39.74. These performance units were tied to fiscal 2019 performance metrics.

During fiscal 2017, the Company granted 397,242 performance share units to its executives (subject to the issuance of 221,242 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $40.82 tied to the Company’s performance in fiscal years 2017, 2018 and 2019. As of the fiscal year ended July 29, 2017, 150,396 of these performance share units vested, based on the Company’s earnings per diluted share, adjusted EBITDA, adjusted ROIC, and net sales with an estimated intrinsic value of approximately $5.7 million using the Company’s stock price as of July 28, 2017. As of the fiscal year ended July 31, 2018, 111,860 performance units vested, based on the Company’s earnings per diluted share, adjusted EBITDA, adjusted ROIC, and net sales with an estimated intrinsic value of approximately $3.6 million using the Company’s stock price as of July 27, 2018. As of August 3, 2019, 77,234 performance units were issuable based on the Company’s adjusted EBITDA and net sales, with an intrinsic value of approximately $0.7 million using the Company stock price as of August 2, 2019.

Stock Options

The Company did not grant stock options in fiscal 2019, 2018 or 2017.

The following summary presents information regarding outstanding stock options as of August 3, 2019 and changes during the fiscal year then ended:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at beginning of year	291,677		$	52.46
Supervalu replacement options	1,625,070		41.91
Exercised	(6,979	)	16.97
Forfeited	(1,420	)	13.13
Canceled	(139,111	)	50.50
Outstanding at end of year	1,769,237		43.06		5.8 years	$	—
Exercisable at end of year	1,760,980		$	43.02	5.8 years	$	—

The aggregate intrinsic value of options exercised during fiscal 2019, 2018 and 2017 was $0.1 million, $0.7 million and $0.1 million, respectively.

Supervalu Replacement Awards

Pursuant to the Merger Agreement, dated as of July 25, 2018, as amended, each outstanding Supervalu stock option, whether vested or unvested, that was unexercised immediately prior to the effective time of the Merger (“SVU Option”) was converted, effective as of the effective time of the Merger, into a stock option exercisable for shares of common stock of the Company (“Replacement Option”) in accordance with the adjustment provisions of the Supervalu stock plan pursuant to which such SVU Option was granted and the Merger Agreement, with such Replacement Option generally having the same terms and conditions as the underlying SVU Option. In addition, pursuant to the Merger Agreement, each outstanding Supervalu restricted share award, restricted stock unit award, deferred share unit award and performance share unit award (“SVU Equity Award”) was converted, effective as of the effective time of the Merger, into time-vesting awards (“Replacement Award”) with a settlement value equal to the merger consideration ($32.50 per share) multiplied by the number of shares of Supervalu common stock subject to such SVU Equity Award, and generally upon the same terms of the SVU Equity Award including the applicable change in control termination protections. The Merger Agreement originally provided that the Replacement Awards were payable in cash, however, the Merger Agreement was amended on October 10, 2018, to provide that the Replacement Awards could be settled in cash and/or an equal value in shares of common stock of the Company.

On October 22, 2018, the Company authorized for issuance and registered on a Registration Statement on Form S-8 filed with the SEC 5,000,000 shares of common stock for issuance in order to satisfy the Replacement Options and Replacement Awards. On March 28, 2019, the Company filed a Registration Statement on Form S-3 with the SEC, which was declared effective on April 5, 2019. During fiscal 2019, the Company issued 2,004,730 shares of common stock at an average price of $12.00 per share for $23.9 million of cash, of which $0.4 million was received subsequent to the end of fiscal 2019.

The Replacement Awards are liability classified awards as they may ultimately be settled in cash or shares at the discretion of the employee. The Replacement Awards liabilities are expensed over the service period based on the fixed value of $32.50 per share.

Retirement Provision

During the second quarter of fiscal 2019, after reviewing retirement provisions and practices for the treatment of equity awards at comparable companies, the Compensation Committee of the Company’s Board of Directors determined to change the terms of its long-term compensation awards to executives who might consider retiring and to better assure that their awards provided an incentive to work for the long term best interests of the Company up to their termination date, and regardless of their retirement plans. Accordingly, the Compensation Committee determined that time-based vesting restricted stock units, with the exception of Replacement Awards, will continue to vest during retirement after termination of employment on the same terms as they would if the executive had not retired, but without the requirement that they remain employed. Performance share-units will be treated similarly on retirement, but subject to actual performance at the time achievement of performance objectives is measured. In addition, an executive’s equity awards granted in the year of retirement will be prorated to reflect the service period prior to the date of retirement. Retirement vesting will only be available to employees age 59 or older who voluntarily terminate employment after at least 10 years of service to the Company. As a result of these retirement provisions, the Company recorded a share-based compensation charge of approximately $6.6 million during the second quarter of fiscal 2019 related to the amendment of outstanding awards. Future grants made to employees who are retirement eligible will result in an accelerated pattern of expense recognition compared to non-retirement eligible employees.