SHARE-BASED AWARDS

12 Months Ended

Aug. 01, 2020

Share-based Payment Arrangement [Abstract]

NOTE 13—SHARE-BASED AWARDS

As of August 1, 2020, the Company has restricted stock awards and performance share units and stock options under four equity incentive plans: the 2002 Stock Incentive Plan; the 2004 Equity Incentive Plan, as amended; the 2012 Equity Incentive Plan, as amended and restated; and the 2020 Equity Incentive Plan. The terms of each stock-based award will be determined by the Board of Directors or the Compensation Committee. As of August 1, 2020, the Company has 2,865,125 shares authorized and available for grant under the 2020 Equity Incentive Plan and the 2012 Equity Incentive 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)	2020			2019			2018
Restricted stock awards	$	23,260		$	22,979		$	19,872
Supervalu replacement awards⁽¹⁾	9,046			14,304			—
Performance-based share awards	1,494			3,013			5,569
Stock option awards	(111		)	199			342
Share-based compensation expense recorded in Operating expenses	33,689			40,495			25,783
Income tax benefit	(9,043		)	(10,458		)	(6,538		)
Share-based compensation expense, net of tax	$	24,646		$	30,037		$	19,245

Share-based compensation expense recorded in Restructuring, acquisition and integration related expenses⁽²⁾	$	1,023		$	33,021		$	107
Income tax benefit	(275		)	(8,870		)	(29		)
Share-based compensation expense recorded in Restructuring, acquisition and integration related expenses, net of tax	$	748		$	24,151		$	78


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


(2)	Includes liability classified awards of $1.0 million and equity classified awards of $0.0 million for fiscal 2020, and liability classified awards $31.7 million and equity classified awards of $1.4 million for fiscal 2019. Amounts recorded in fiscal 2018 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. Time-based vesting awards for employees typically vest in three or four equal installments. The Board has adopted a policy in connection with the 2020 Equity Incentive Plan that sets forward grant, vesting and settlement dates for equity awards, a one-year vesting period for awards issued to non-employee directors has been established, and a three-year equal installment vesting period for designated employee restricted stock awards. Performance awards are now set at a three-year cliff vest, subject to achievement of the performance objective. As of August 1, 2020, there was $47.2 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 $6.3 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 1.9 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 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
Granted	6,058,519		7.67
Vested	(1,043,628	)	20.59
Forfeited	(2,018,975	)	12.39
Outstanding at August 1, 2020	7,416,649		$	18.54



(in thousands)	2020		2019		2018
Intrinsic value of restricted stock units vested	$	21,007	$	36,071	$	12,420

Performance-Based Share Awards

During fiscal 2020, the Company granted 977,860 performance share units to its executives (subject to the issuance of up to 977,860 additional shares if the Company’s performance exceeds specified targeted levels) with a weighted average grant-date fair value of $8.07. These performance units are tied to fiscal 2020, 2021 and 2022 performance metrics, including adjusted EPS Growth, adjusted return on invested capital (“ROIC”) and adjusted EBITDA leverage. There were no performance share units forfeited during fiscal 2020, and as of August 1, 2020, there are 977,860 performance share units outstanding.

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 were tied to fiscal 2020 performance metrics, including adjusted EBITDA and ROIC. During fiscal 2020 and fiscal 2019, there were 261,483 and 6,620, respectively, of performance share units forfeited, and as of August 1, 2020, 71,539 performance share units have been earned and will be issued in fiscal 2021.

During fiscal 2018, the Company granted 109,100 performance share units to its executives (subject to the issuance of 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, the majority of which did not vest.

Stock Options

The Company did not grant stock options in fiscal 2020, 2019 or 2018.

The following summary presents information regarding outstanding stock options as of August 1, 2020 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	1,769,237		$	43.06
Exercised	(3,519	)	14.77
Forfeited	(429,225	)	51.52
Canceled	(206,420	)	46.75
Outstanding at end of year	1,130,073		46.46		4.4 years	$	—
Exercisable at end of year	1,130,073		$	46.46	4.4 years	$	—

The aggregate intrinsic value of options exercised during fiscal 2020, 2019 and 2018 was less than $0.1 million, $0.1 million and $0.7 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. 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. During fiscal 2020, the Company issued 1,349,655 shares of common stock at an average price of $10.66 per share for $14.3 million of cash.

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.