SHARE-BASED PAYMENTS

In accordance with stockholder-approved plans, we issue share-based payments under various stock-based compensation arrangements, including stock options, restricted stock units, cash-settled restricted stock units, performance shares, and other share-based awards. The shares to be delivered under the plan may consist, in whole or part, of treasury stock or authorized but unissued stock, not reserved for any other purpose.

On September 19, 2014, the stockholders approved the Conagra Brands 2014 Stock Plan, which authorized the issuance of up to 30.0 million shares of Conagra Brands common stock as well as certain shares of stock subject to outstanding awards under predecessor stock plans that expire, lapse, are cancelled, terminated, forfeited or otherwise become unexercisable. At May 28, 2017, approximately 32.5 million shares were reserved for granting additional options, restricted stock units, cash-settled restricted stock units, performance shares, or other share-based awards.

In connection with the completion of the Spinoff, the provisions of our existing stock-based compensation arrangements required adjustments to the number and terms of outstanding stock options, restricted stock units, cash-settled restricted stock units, performance shares, and other share-based awards to preserve the intrinsic value of the awards immediately before and after the completion of the Spinoff. The outstanding awards continue to vest over the original vesting periods (typically three years). Outstanding awards at the time of the Spinoff were converted into awards of the holder’s employer following completion of the Spinoff. The stock awards held as of November 9, 2016 were adjusted as follows:


•	The number of shares of common stock subject to each outstanding stock option was increased and the corresponding exercise price was decreased to maintain the intrinsic value of each outstanding stock option immediately before and after the Spinoff. A comparison of the fair value of the outstanding stock option awards immediately before and after the Spinoff resulted in no incremental expense.


•	The number of shares of common stock underlying each outstanding restricted stock unit and performance share, and the value of each outstanding cash-settled restricted stock was increased to preserve the intrinsic value of such award immediately prior to the Spinoff. The Company did not record any incremental compensation expense related to the adjustment of these awards.

All amounts below are of continuing and discontinued operations.

Stock Option Plan

We have stockholder-approved stock option plans that provide for granting of options to employees for the purchase of common stock at prices equal to the fair value at the date of grant. Options become exercisable under various vesting schedules (typically three years) and generally expire seven to ten years after the date of grant.

The fair value of each option is estimated on the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions for stock options granted:



	2017	2016	2015
Expected volatility (%)	19.15	17.88	17.45
Dividend yield (%)	2.33	2.74	3.10
Risk-free interest rates (%)	1.03	1.60	1.58
Expected life of stock option (years)	4.94	4.96	4.92

The expected volatility is based on the historical market volatility of our stock over the expected life of the stock options granted. The expected life represents the period of time that the awards are expected to be outstanding and is based on the contractual term of each instrument, taking into account employees' historical exercise and termination behavior.

For stock option activity prior to the Spinoff, the weighted-average exercise prices in the table below reflect the historical exercise prices. A summary of the option activity as of May 28, 2017 and changes during the fiscal year then ended is presented below:



Options	Number of Options (in Millions)		Weighted Average Exercise Price		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in Millions)
Outstanding at May 29, 2016	7.1		$	33.11
Granted	1.1		$	48.01
Exercised	(2.9	)	$	28.89		$	128.6
Forfeited	(0.9	)	$	35.62
Expired	—		$	—
Conversion for the Spinoff of Lamb Weston	1.9		$	26.90
Outstanding at May 28, 2017	6.3		$	27.12	6.92	$	171.4
Exercisable at May 28, 2017	3.8		$	23.77	5.84	$	90.8

We recognize compensation expense using the straight-line method over the requisite service period. During fiscal 2017, 2016, and 2015, the Company granted 1.1 million options, 1.6 million options, and 4.4 million options, respectively, with a weighted average grant date value of $6.12, $5.08, and $3.36, respectively. The total intrinsic value of options exercised was $128.6 million, $165.6 million, and $69.5 million for fiscal 2017, 2016, and 2015, respectively. The closing market price of our common stock on the last trading day of fiscal 2017 was $39.03 per share.

Compensation expense for stock option awards totaled $6.2 million, $9.4 million, and $12.4 million for fiscal 2017, 2016, and 2015, respectively. Included in the compensation expense for stock option awards for fiscal 2017, 2016, and 2015 was $0.9 million, $1.0 million, and $1.4 million, respectively, related to stock options granted by a subsidiary in the subsidiary's shares to the subsidiary's employees. The tax benefit related to the stock option expense for fiscal 2017, 2016, and 2015 was $2.4 million, $3.6 million, and $4.8 million, respectively.

At May 28, 2017, we had $6.4 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock options that will be recognized over a weighted average period of 1.3 years.

Cash received from option exercises for the fiscal years ended May 28, 2017, May 29, 2016, and May 31, 2015 was $84.4 million, $228.7 million, and $150.2 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $19.5 million, $57.3 million, and $26.7 million for fiscal 2017, 2016, and 2015, respectively.

Share Unit Plans

In accordance with stockholder-approved plans, we issue stock under various stock-based compensation arrangements, including restricted stock units, cash-settled restricted stock units, and other share-based awards ("share units"). These awards generally have requisite service periods of three years. Under each arrangement, stock is issued without direct cost to the employee. We estimate the fair value of the share units based upon the market price of our stock at the date of grant. Certain share unit grants do not provide for the payment of dividend equivalents to the participant during the requisite service period (vesting period). For those grants, the value of the grants is reduced by the net present value of the foregone dividend equivalent payments. We recognize compensation expense for share unit awards on a straight-line basis over the requisite service period. All cash-settled restricted stock units are marked-to-market and presented within other current and noncurrent liabilities in our Consolidated Balance Sheets. The compensation expense for our stock-settled share unit awards totaled $18.2 million, $25.1 million, and $21.0 million for fiscal 2017, 2016, and 2015, respectively. The tax benefit related to the stock-settled share unit award compensation expense for fiscal 2017, 2016, and 2015 was $7.0 million, $9.6 million, and $8.1 million, respectively. The compensation expense for our cash-settled share unit awards totaled $20.9 million, $33.9 million, and $29.2 million for fiscal 2017, 2016, and 2015, respectively. The tax benefit related to the cash-settled share unit award compensation expense for fiscal 2017, 2016, and 2015 was $8.0 million, $13.0 million, and $11.2 million, respectively.

For restricted stock unit activity prior to the Spinoff, the weighted-average grate-date fair value in the table below reflects historical market prices. The following table summarizes the nonvested share units as of May 28, 2017 and changes during the fiscal year then ended:



	Stock-settled				Cash-settled
Share Units	Share Units (in Millions)		Weighted Average Grant-Date Fair Value		Share Units (in Millions)		Weighted Average Grant-Date Fair Value
Nonvested share units at May 29, 2016	1.54		$	38.67	1.46		$	37.53
Granted	0.56		$	46.79	0.39		$	48.07
Vested/Issued	(0.58	)	$	35.78	(0.51	)	$	36.40
Forfeited	(0.39	)	$	40.44	(0.46	)	$	39.41
Conversion for the Spinoff of Lamb Weston	0.43		$	31.27	0.33		$	30.48
Nonvested share units at May 28, 2017	1.56		$	31.59	1.21		$	30.52

During fiscal 2017, 2016, and 2015, we granted 0.6 million, 1.0 million, and 0.9 million stock-settled share units, respectively, with a weighted average grant date value of $46.79, $43.64, and $31.71, respectively. During fiscal 2017, 2016, and 2015, we granted 0.4 million, 0.8 million, and 0.9 million cash-settled share units, respectively, with a weighted average grant date value of $48.07, $44.48, and $30.89, respectively.

The total intrinsic value of stock-settled share units vested was $27.0 million, $48.8 million, and $46.6 million during fiscal 2017, 2016, and 2015, respectively. The total intrinsic value of cash-settled share units vested was $24.0 million, $44.9 million, and $1.6 million during fiscal 2017, 2016, and 2015, respectively.

At May 28, 2017, we had $20.5 million and $17.2 million of total unrecognized compensation expense, net of estimated forfeitures, that will be recognized over a weighted average period of 1.8 years and 1.7 years, related to stock-settled share unit awards and cash-settled share unit awards, respectively.

Performance-Based Share Plan

Performance shares are granted to selected executives and other key employees with vesting contingent upon meeting various Company-wide performance goals. The performance goals for the performance period that began in fiscal 2015 and ends in fiscal 2017 were originally based upon an overarching earnings per share goal (for certain participants) and, for all participants, (a) our earnings before interest, taxes, depreciation, and amortization ("EBITDA") return on capital, and (b) revenue growth, each measured over the defined performance period, and including the expected results of Lamb Weston. In connection with the Spinoff, the Human Resources Committee of the Board of Directors certified the EBITDA return on capital performance of the Company through the fiscal period that ended immediately prior to the Spinoff. Awards to participants originally subject to the overarching earnings per share goal remain subject to achievement of such goal. All other performance shares granted for the fiscal 2015 through 2017 performance period are subject only to continuing employment of the participant through the date of payout.

The performance goal for one-third of the target number of performance shares for the performance period ending in fiscal 2018 (the "2018 performance period") is based upon an overarching earnings per share goal (for certain participants) and, for all participants, our fiscal 2016 EBITDA return on capital. Another one-third of the target number of performance shares granted for the 2018 performance period is based on an overarching earnings per share goal (for certain participants) and our fiscal 2017 EBITDA return on capital. The fiscal 2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the last one-third of the target number of performance shares granted for the 2018 performance period is expected to be set at the start of fiscal 2018.

The performance goal for one-third of the target number of performance shares for the performance period ending in fiscal 2019 (the "2019 performance period") is based upon an overarching earnings per share goal (for certain participants) and our fiscal 2017 EBITDA return on capital. The fiscal 2017 EBITDA return on capital target, when set, excluded the results of Lamb Weston. The performance goal for the final two-thirds of the target number of performance shares granted for the 2019 performance period is expected to be set at the start of fiscal 2018.

Awards, if earned, will be paid in shares of our common stock. Subject to limited exceptions set forth in the performance share plan, any shares earned will be distributed after the end of the performance period, and only if the participant continues to be employed with the Company through the date of distribution. For awards where performance against the performance target has not been certified, the value of the performance shares is adjusted based upon the market price of our common stock and current forecasted performance against the performance targets at the end of each reporting period and amortized as compensation expense over the vesting period.

For performance share activity prior to the Spinoff, the weighted-average grate-date fair value in the table below reflects historical market prices. A summary of the activity for performance share awards as of May 28, 2017 and changes during the fiscal year then ended is presented below:



Performance Shares	Share Units (in Millions)		Weighted Average Grant-Date Fair Value
Nonvested performance shares at May 29, 2016	0.75		$	36.09
Granted	0.22		$	46.94
Adjustments for performance results attained and dividend equivalents	(0.16	)	$	35.05
Vested/Issued	(0.06	)	$	35.05
Forfeited	(0.15	)	$	28.32
Conversion for the Spinoff of Lamb Weston	0.26		$	29.09
Nonvested performance shares at May 28, 2017	0.86		$	29.23

The compensation expense for our performance share awards totaled $13.3 million, $14.2 million, and $5.7 million for fiscal 2017, 2016, and 2015, respectively. The tax benefit related to the compensation expense for fiscal 2017, 2016, and 2015 was $5.1 million, $5.4 million, and $2.2 million, respectively.

The total intrinsic value of share units vested (including shares paid in lieu of dividends) during fiscal 2017, 2016, and 2015 was $2.8 million, $12.7 million, and $13.9 million, respectively.

Based on estimates at May 28, 2017, the Company had $10.4 million of total unrecognized compensation expense, net of estimated forfeitures, related to performance shares that will be recognized over a weighted average period of 1.7 years.