15.	SHARE-BASED COMPENSATION, COMMON STOCK ISSUANCES, REDEEMABLE COMMON STOCK AND COMMON STOCK

The Company’s 2007 Plan and 2016 Plan (collectively, the “Incentive Plans”) provide for the sale of common stock to named executive officers and other key employees and directors. They also allow for grants of 1) stock options to purchase shares of common stock, 2) stock appreciation rights, and 3) restricted stock and restricted stock units to certain individuals. The Board of Directors or the Compensation Committee of the Board of Directors is authorized to select the officers, employees and directors eligible to participate in the Incentive Plans. Either the Board of Directors or the Compensation Committee may determine the specific number of shares to be offered, or options, stock appreciation rights or restricted stock to be granted to an employee or director.

In May 2013, the 2007 Plan was amended to, among other things, increase the number of shares of common stock available for grant—from approximately 11.7 million shares to approximately 19.7 million shares.

In June 2016, the 2016 Plan was adopted by the Board of Directors and approved by the Company’s shareholders. The 2016 Plan provides for the grant of up to 9 million shares of common stock or stock-based awards.

Employee Put Option—There were no terminations in 2014 or 2015 that triggered the put right and, therefore, met the criteria for liability treatment. As such, there was no impact on stock-based compensation costs for these respective periods.

In addition, in connection with the IPO, the management stockholder’s agreement was amended to remove the put option; accordingly, the entire amount reflected in Redeemable common stock was reclassified to Shareholders’ equity during the second quarter of 2016. See Redeemable Common Stock in Note 2, Summary of Significant Accounting Policies, for further discussion. After the IPO, all common stock and common stock award activity was recorded within Shareholders’ Equity.

Company Call Option—During 2014, 2015, and 2016, there were terminations in which the Company believed it was probable that it would exercise its call right and, therefore, met the criteria for liability treatment with minimal impact on the stock-based compensation expense. As of January 2, 2016, an award liability totaling $0.6 million was reclassified out of Redeemable common stock and into accrued expenses and other current liabilities.

The Company measures compensation expense for share-based awards at the fair value at the date of grant, and recognizes compensation expense over the service period for share-based awards expected to vest. Total compensation expense related to share-based payment arrangements was $18 million, $16 million and $12 million for fiscal years 2016, 2015 and 2014, respectively. No share-based compensation cost was capitalized as part of the cost of an asset during those years. The total income tax benefit recorded in the Consolidated Statement of Comprehensive Income (Loss) was $6 million in fiscal years 2016 and 2015, and $4 million in fiscal year 2014.

Common Stock Issuances—Certain employees have purchased shares of common stock, pursuant to a management stockholder’s agreement associated with the 2007 Plan. These shares are subject to the terms and conditions (including certain restrictions) of each management stockholder’s agreement, other documents signed at the time of purchase, as well as transfer limitations under the applicable law.

In August 2016, the Company’s Board of Directors approved the Stock Purchase Plan. The purpose of the Stock Purchase Plan is to provide eligible employees with the opportunity to acquire common shares of the company. An eligible employee is a person that: 1) is employed by the company, and 2) has provided continuous service, works a minimum of 20 hours per week, and works a minimum of five months throughout the year. A person will not be eligible for the grant of any purchase rights if, immediately after the grant of such purchase right, the person owns stock possessing five percent or more of the total combined voting power or value of all classes of shares of the Company or any Subsidiary.

Participation in the Stock Purchase Plan occurs via payroll deferrals with share purchases occurring quarterly. Shares are purchased based on the closing price of the stock at the end of the designated purchase period. The Stock Purchase Plan provides participants with a discount of up to 15% of the fair market value of the common stock, so the plan is considered compensatory. For fiscal year 2016, the Company recorded $0.8 million of stock-based compensation expense associated with the Stock Purchase Plan.

Stock Option Awards—The Company granted to certain employees time-based vesting options (“Time Options”) and performance-based vesting options (“Performance Options”), and collectively the (“Options”) to purchase common shares. These Options are subject to the restrictions set forth in the stock option agreements. Shares purchased pursuant to option exercises are governed by the restrictions in the relevant Incentive Plan and management stockholder’s agreements. The Options also contain certain anti-dilution protection provisions.

The amount of Redeemable common stock ascribed to stock option awards was $0 at January 2, 2016 because the strike price of the stock option awards was equal to the fair value at date of grant. See Redeemable Common Stock in Note 2, Summary of Significant Accounting Policies, for further discussion.

The Time Options vest and become exercisable ratably over periods of four to five years. This happens either on the anniversary date of the grant or the last day of each fiscal year, beginning with the fiscal year issued. In fiscal 2016, 2015, and 2014, the Company recognized $4 million, $3 million, and $3 million, respectively, in compensation expense related to Time Options.

The Performance Options also vest and become exercisable ratably over four to five years, either on the anniversary date of the grant or the last day of each fiscal year (beginning with the fiscal year issued), provided that the Company achieves an annual operating performance target as defined in the applicable stock option agreements. The award agreements establish annual and cumulative targets for each year at the beginning of each respective fiscal year. In this case, the grant date under GAAP is not determined until the performance target for the related options is known. The agreements also provide for “catch-up vesting” of the Performance Options, if an annual operating performance target is not achieved, but a cumulative operating performance target is achieved.

The Company achieved the annual and cumulative operating performance targets in 2016 and recorded a compensation charge of $4 million for the Performance Options. The Company achieved the annual and cumulative performance targets in fiscal year 2015 and recorded a compensation charge of $5 million for the Performance Options. The charge consisted of $3 million relating to fiscal year 2015 and $2 million related Performance Options granted in fiscal years 2013, 2012 and 2011, which met cumulative performance targets in 2015. The Company achieved the annual performance target in fiscal year 2014 and recorded a compensation charge of $4 million for the Performance Options relating to fiscal year 2014.

The Options are nonqualified options, with exercise prices equal to the estimated fair value of a share of common stock at the date of the grant. The Options have exercise prices ranging from $8.51 to $23.50 per share and generally have a 10-year life. The fair value of each option award is estimated as of the date of grant using a Black-Scholes option-pricing model.

The weighted-average assumptions for options granted in fiscal years 2016 and 2015 are included in the following table. No options were granted in fiscal year 2014.

	2016			2015
Expected volatility		28.8	%		36.6	%
Expected dividends		—			—
Risk-free interest rate		1.5	%		1.6	%
Expected term (in years)	5.9				4.8

Expected volatility is calculated leveraging the historical volatility of public companies similar to US Foods. The assumed dividend yield is zero, because the Company has not historically paid dividends. However, as further discussed in Note 14, Related Party Transactions, the Company did pay a special cash distribution in January 2016, which was considered one-time in nature. The risk-free interest rate is the implied zero-coupon yield for U.S. Treasury securities having a maturity approximately equal to the expected term, as of the grant date. Due to a lack of relevant historical data, the simplified approach was used to determine the expected term of the options.

The summary of Options outstanding and changes during fiscal year 2016 is presented below.


															Weighted-
										Weighted-		Weighted-			Average
										Average		Average			Remaining
	Time			Performance			Total			Fair		Exercise			Contractual
	Options			Options			Options			Value		Price			Years
Outstanding at January 2, 2016		4,382,888			3,461,790			7,844,678		$	5.45	$	14.76	*
Granted		1,233,748			714,776			1,948,524		$	6.28	$	21.18
Exercised		(412,638	)		(395,526	)		(808,164	)	$	5.26	$	10.52
Forfeited		(230,281	)		(92,848	)		(323,129	)	$	6.59	$	17.79
Outstanding at December 31, 2016		4,973,717			3,688,192			8,661,909		$	5.65	$	12.91			5.4
Vested and exercisable at December 31, 2016		3,136,255			3,088,352			6,224,607		$	5.27	$	10.43			4.0

Per share exercise price was subsequently reduced by $3.65 to reflect the change in value resulting from the January 2016 one-time special cash distribution.

The weighted-average grant date fair value of options granted in fiscal years 2016 and 2015 was $6.28 and $6.91, respectively. There were no options granted in fiscal year 2014. In fiscal years 2016, 2015 and 2014, the Company recorded $8 million, $8 million and $7 million, respectively, in compensation expense related to the Options. The stock compensation expense—representing the fair value of stock options vested during the year—is reflected in our Consolidated Statements of Comprehensive Income (Loss) in Distribution, selling and administrative costs. During fiscal year 2016, 412,638 Time Options and 395,526 Performance Options were exercised by terminated employees for a cash outflow of $4 million, representing the excess of fair value over exercise price. During fiscal year 2015, 773,696 Time Options and 682,920 Performance Options were exercised by terminated employees for a cash outflow of $6 million, representing the excess of fair value over exercise price. During fiscal year 2014, 4,444 Time Options and 3,703 Performance Options were exercised by terminated employees for a minimal cash outflow, representing the excess of fair value over exercise price.

As of December 31, 2016, there was $10 million of total unrecognized compensation costs related to 2.4 million nonvested Options expected to vest under the Stock Option Agreements. That cost is expected to be recognized over a weighted-average period of three years.

Restricted Shares—Certain employees received restricted shares (the “Restricted Shares”) in fiscal year 2016. These shares were granted under the 2016 Plan and contain non-forfeitable dividend rights. Restricted Shares vest ratably over periods of primarily two to five years. However, during fiscal 2016, the Company granted a special award to employees that permitted immediate vesting. No Restricted Shares were issued in fiscal year 2015 or 2014. The amount of Redeemable common stock ascribed to vested Restricted Shares was $4 million at January 2, 2016. See Redeemable Common Stock in Note 2, Summary of Significant Accounting Policies, for further discussion.

The summary of nonvested Restricted Shares outstanding and changes during fiscal year 2016 is presented below:

	Restricted Shares			Weighted- Average Fair Value
Nonvested at January 2, 2016		7,037		$	16.20
Granted		108,471		$	14.58
Vested		(115,184	)	$	14.67
Forfeited		(324	)	$	16.20
Nonvested at December 31, 2016		—		$	—

The weighted-average grant date fair value for Restricted Shares granted in 2016 was $14.58. Expense of $2 million and $1 million related to the Restricted Shares was recorded in Distribution, selling and administrative costs during fiscal years 2016 and 2015, respectively. The 2014 expense related to the Restricted Shares of $1 million was offset by an adjustment of prior year expense. At December 31, 2016, there was no unrecognized compensation cost related to the Restricted Shares.

Restricted Stock Units—Beginning in 2013, certain employees received time-based vesting restricted stock units (“Time Restricted Stock Units”) and performance-based vesting restricted stock units (“Performance Restricted Stock Units,” and collectively the “RSUs”) granted pursuant to the 2007 Plan and, after the IPO, pursuant to the 2016 Plan. The RSUs also contain certain anti-dilution protection provisions. Time RSUs generally vest and become exercisable ratably over four years, starting on the anniversary date of grant. In fiscal years 2016, 2015, and 2014, the Company recognized $4 million, $3 million, and $2 million, respectively in compensation expense related to Time RSUs.

Performance RSUs also vest and become exercisable ratably over four years either on the anniversary date of the grant or the last day of each fiscal year (beginning with the fiscal year issued), provided that the Company achieves an annual operating performance target as defined in the applicable restricted stock unit agreements (“Restricted Stock Unit Agreements”). The Restricted Stock Unit Agreements also provide for “catch-up vesting” of the Performance RSUs if an annual operating performance target is not achieved, but a cumulative operating performance target is achieved. Similar to options, the RSU award agreements do not include performance targets for all years covered by the Restricted Stock Unit Agreement. Instead, the Company established annual targets for each year at the beginning of each fiscal year. In this case, the grant date under GAAP is not determined until the performance target for the related Performance RSU is known.

The Company achieved the annual and cumulative operating performance targets in 2016 and recorded a compensation charge of $4 million. The Company achieved the annual and cumulative operating performance targets in 2015 and recorded a compensation charge of $4 million. The 2015 charge consisted of $3 million relating to fiscal year 2015, and $1 million related to Performance RSUs granted in 2013 which met cumulative performance targets in 2015. The Company achieved the annual operating performance target in 2014 and recorded a compensation charge of $3 million in 2014 for the Performance RSUs.

The amount of Redeemable common stock ascribed to RSUs was $10 million at January 2, 2016. See Redeemable Common Stock in Note 2, Summary of Significant Accounting Policies, for further discussion.

The summary of nonvested RSUs outstanding and changes during fiscal year 2016 is presented below.

	Time						Total			Weighted-
	Restricted			Performance			Restricted			Average
	Stock			Restricted			Stock			Fair
	Units			Stock Units			Units			Value
Nonvested at January 2, 2016		502,769			234,727			737,496		$	17.41
Granted		410,984			326,206			737,190		$	18.75
Vested		(193,701	)		(279,483	)		(473,184	)	$	13.47
Forfeited		(82,716	)		(39,177	)		(121,893	)	$	16.06
Nonvested at December 31, 2016		637,336			242,273			879,609		$	17.68

The weighted-average grant date fair values for RSUs granted in fiscal year 2016 was $18.75. Expense of $8 million, $7 million and $5 million related to the Restricted Stock Units was recorded in Distribution, selling and administrative costs during fiscal years 2016, 2015 and 2014, respectively.

At December 31, 2016, there was $10 million of unrecognized compensation cost related to 0.9 million RSUs that is expected to be recognized over a weighted-average period of two years.

Equity Appreciation Rights—The Company has an Equity Appreciation Rights (“EAR”) Plan for certain employees. Each EAR represents one phantom share of US Foods common stock. The EARs also contain certain anti-dilution protection provisions. The EARs become vested and payable at the time of a qualified public offering of equity shares, at the time of involuntary termination, or a change in control, as defined in the agreement. EARs are forfeited upon voluntary termination of the participant’s employment. The EARs will be settled in cash upon vesting and, accordingly, are considered liability instruments. No EARs were granted during fiscal years 2016, 2015 and 2014. During 2016, the Company recorded a compensation charge of $1 million for EARs exercised by involuntarily terminated employees.

As the EARs are liability instruments, the fair value of the vested awards is re-measured each reporting period until the award is settled. Since vesting of all outstanding EARs is contingent upon performance conditions, as defined in. the EAR plan, and currently not considered probable, no compensation costs have been recorded to date for the outstanding EARs. As of December 31, 2016, there were a total of 454,656 EARs outstanding with a weighted average exercise price of $9.81 per share.

Redeemable Common Stock—As previously described, after the IPO, all amounts reflected in Redeemable common stock were reclassified to Shareholders’ equity. Since the Company Call Option is the sole remaining redemption feature, there were no amounts attributed to Redeemable common stock in periods after the second quarter of 2016. The summary of changes in Redeemable common stock during fiscal years 2016, 2015 and 2014 is presented below (dollars in thousands).

										Total
										Redeemable
	Number of						Management			Common
	Shares			Dollars			Loans			Stock
BALANCE—December 28, 2013		2,601,296		$	38,090		$	(167	)	$	37,923
Issuance of Redeemable common stock		193,089			169			—			169
Redeemable common stock repurchased		(40,206	)		(744	)		—			(744	)
Payments on management loans		—			—			167			167
Share-based compensation expense for
Redeemable common stock awards		—			5,169			—			5,169
BALANCE—December 27, 2014		2,754,179			42,684			—			42,684
Issuance of Redeemable common stock		1,720,923			20,478			—			20,478
Redeemable common stock repurchased		(2,116,483	)		(31,878	)		—			(31,878	)
Reclassification to award liability		—			(619	)		—			(619	)
Share-based compensation expense for
Redeemable common stock awards		—			7,776			—			7,776
BALANCE—January 2, 2016		2,358,619			38,441			—			38,441
Issuance of Redeemable common stock		303,946			2,850			—			2,850
Redeemable common stock repurchased		(140,194	)		(1,467	)		—			(1,467	)
Share-based compensation expense for
Redeemable common stock awards		—			3,287			—			3,287
Reclassification to shareholders' equity		(2,522,371	)		(43,111	)					(43,111	)
BALANCE—December 31, 2016		—		$	—		$	—		$	—