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Stock-Based Compensation

3 Months Ended

Dec. 03, 2022

Note 4. Stock-Based Compensation

The Company accounts for all stock-based payments in accordance with Accounting Standards Codification Topic 718, “Compensation—Stock Compensation,” as amended. Stock-based compensation expense included in Operating expenses for the thirteen weeks ended December 3, 2022 and November 27, 2021 was as follows:


	Thirteen Weeks Ended
	December 3,		November 27,
	2022		2021
Stock options	$	101	$	588
Restricted stock units		3,711		4,703
Performance share units		1,095		308
Associate Stock Purchase Plan		83		90
Total		4,990		5,689
Deferred income tax benefit		(1,233)		(1,337)
Stock-based compensation expense, net	$	3,757	$	4,352

Stock Options

The Company discontinued its grants of stock options in fiscal year 2020. The fair value of each option grant in previous fiscal years was estimated on the date of grant using the Black-Scholes option pricing model.

A summary of the Company’s stock option award activity for the thirteen weeks ended December 3, 2022 is as follows:


	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on September 3, 2022	614	$	78.96
Granted	—		—
Exercised	(114)		73.36
Canceled/Forfeited/Expired	(23)		80.27
Outstanding on December 3, 2022	477	$	80.23	2.2	$	2,583
Exercisable on December 3, 2022	477	$	80.23	2.2	$	2,583

The total intrinsic value of options exercised, which represents the difference between the exercise price and the market value of Class A Common Stock measured at each individual exercise date, during the thirteen weeks ended December 3, 2022 and November 27, 2021 was $970 and $2,543, respectively. The unrecognized stock-based compensation cost related to stock option expense was fully amortized at December 3, 2022.

Performance Share Units

In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term stock-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.

The following table summarizes all transactions related to PSUs under the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “2015 Omnibus Incentive Plan”) (based on target award amounts) for the thirteen weeks ended December 3, 2022:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested PSUs at September 3, 2022	88	$	80.04
Granted	51		82.16
PSU adjustment ⁽¹⁾	4		76.32
Vested	(26)		76.32
Canceled/Forfeited	—		—
Non-vested PSUs at December 3, 2022 ⁽²⁾	117	$	81.86

⁽¹⁾ PSU adjustment represents the net PSUs awarded above or below their target grants resulting from the achievement of performance goals above or below the performance targets established at grant. One grant goal was achieved at 116% of its target based on fiscal year 2021 through fiscal year 2022 financial results.
⁽²⁾Excludes approximately 8 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 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 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 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 PSUs, subject to the same performance vesting requirements. The unrecognized stock-based compensation cost related to the PSUs at December 3, 2022 was $7,700 and is expected to be recognized over a weighted-average period of 2.2 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 the thirteen weeks ended December 3, 2022 is as follows:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested RSUs at September 3, 2022	448	$	79.71
Granted	178		82.36
Vested	(146)		79.11
Canceled/Forfeited	(4)		80.55
Non-vested RSUs at December 3, 2022 ⁽¹⁾	476	$	80.87

⁽¹⁾Excludes approximately 39 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 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 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 stock-based compensation cost related to the RSUs at December 3, 2022 was $34,534 and is expected to be recognized over a weighted-average period of 3.0 years.