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

The Compensation Committee of the Board of Directors is authorized to select the officers, employees and directors eligible to participate in the 2016 Plan. The Compensation Committee may determine the specific number of shares to be offered, or options, restricted stock units, stock appreciation rights or shares of restricted stock to be granted to an employee or director.

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. The 2007 Plan terminated according to its terms on December 21, 2017. The termination of the 2007 Plan has no effect on any outstanding awards.

Total compensation expense related to share-based payment arrangements was $21 million, $18 million and $16 million for fiscal years 2017, 2016 and 2015, respectively and is reflected in distribution, selling and administrative costs. 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 was $7 million in fiscal year 2017, and $6 million in fiscal years 2016 and 2015.

Common Stock Issuances—Certain employees have purchased 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. The Company recorded $3 million and $0.8 million of stock-based compensation expense in 2017 and 2016, respectively, associated with the Stock Purchase Plan.

Stock Options—The Company granted to certain employees time-based options (“Time Options”) and performance-based options (“Performance Options”), 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 provisions.

The Time Options vest and become exercisable ratably over periods of three 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. Compensation expense related to Time Options was $4 million in fiscal years 2017 and 2016, and $3 million in fiscal year 2015.

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. Awards granted prior to 2016 established annual and cumulative targets for each year at the beginning of each respective fiscal year. In this case, the grant date under GAAP was not determined until the performance target for the related options was known. The pre-2016 award also provided for “catch-up vesting” of the Performance Options, if an annual operating performance target was not achieved, but a cumulative operating performance target was achieved.

The Company achieved its annual performance targets in fiscal years 2017, 2016 and 2015 and recorded compensation expense of $3 million, $4 million and $5 million, respectively. The 2015 compensation expense of $5 million, included a $2 million catch-up adjustment for awards prior to 2015.

The Options are nonqualified, with exercise prices equal to the estimated fair value of a share of common stock at the date of the grant. Exercise prices range from $8.51 to $30.39 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 2017, 2016 and 2015 are included in the following table.

	2017			2016			2015
Expected volatility		31.8	%		28.8	%		36.6	%
Expected dividends		—			—			—
Risk-free interest rate		1.9	%		1.5	%		1.6	%
Expected term (in years)	5.8			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 2017 are presented below.

														Weighted-
										Weighted-		Weighted-		Average
										Average		Average		Remaining
	Time			Performance			Total			Fair		Exercise		Contractual
	Options			Options			Options			Value		Price		Years
Outstanding at December 31, 2016		4,973,717			3,688,192			8,661,909		$	5.65	$	12.91
Granted		857,181			429,532			1,286,713		$	11.08	$	26.72
Exercised		(2,418,764	)		(2,359,435	)		(4,778,199	)	$	5.12	$	10.15
Forfeited		(402,582	)		(152,872	)		(555,454	)	$	7.54	$	19.94
Outstanding at December 30, 2017		3,009,552			1,605,417			4,614,969		$	7.47	$	18.79		7.2
Vested and exercisable at December 30, 2017		1,230,897			1,242,245			2,473,142		$	6.10	$	14.31		5.8

The weighted-average grant date fair value of options granted in fiscal years 2017, 2016 and 2015 was $11.08, $6.28 and $6.91, respectively.

During fiscal year 2017, Options were exercised with a total intrinsic value of $86 million, representing the excess of fair value over exercise price. During fiscal year 2016, 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, Options were exercised by terminated employees for a cash outflow of $6 million, representing the excess of fair value over exercise price.

As of December 30, 2017, there was $13 million of total unrecognized compensation costs related to nonvested Options expected to vest under the Stock Option Agreements. That cost is expected to be recognized over a weighted-average period of two years.

Restricted Shares—Certain employees received restricted shares (the “Restricted Shares”) in fiscal years 2017 and 2016 granted under the 2016 Plan. Prior to 2017, restricted shares contained time-based vesting (“Time Shares”) and contained non-forfeitable dividend rights. In 2017, performance-based shares (“Performance Shares”) were granted that contained forfeitable dividend rights.

Performance Shares are granted at the maximum award amount, and cliff vest at the end of a three-year performance period if specific performance goals, established for each calendar year during the performance period, are achieved. The number of shares eligible to vest at the end of the vesting period may range from zero to 200% of the target award amount, based on the achievement of the performance goals. The fair value of Performance Shares is measured using the market price of our common stock on the date of grant, and recognized over the vesting period for the portion of the award that is expected to vest. Compensation expense for Performance Shares is remeasured at each reporting period, based on management’s evaluation of whether it is probable that performance conditions will be met.

The Time Shares granted in 2016 were special awards that permitted immediate vesting. Accordingly, there were no unvested Time Shares at the end of 2016. No Restricted Shares were awarded in fiscal year 2015.

The summary of nonvested Performance Shares outstanding and changes during fiscal year 2017 is presented below:

	Performance Shares			Weighted- Average Fair Value
Nonvested at December 31, 2016		—		$	—
Granted		257,766		$	30.39
Vested		—		$	—
Forfeited		(16,453	)	$	30.39
Nonvested at December 30, 2017		241,313		$	30.39

The weighted-average grant date fair value for Performance Shares granted in 2017 and 2016 was $30.39 and $14.58, respectively. Compensation expense for Restricted Shares was $1 million, $2 million and $1 million in fiscal years 2017, 2016 and 2015, respectively. At December 30, 2017, there was $3 million of unrecognized compensation cost related to the Performance Shares that is expected to be recognized over a weighted average period of 2 years.

Restricted Stock Units—Certain employees have received time-based restricted stock units (“Time RSUs”) and performance-based restricted stock units (“Performance RSUs”), 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 provisions. Time RSUs generally vest ratably over three to four years, starting on the anniversary date of grant. In fiscal years 2017, 2016 and 2015, the Company recognized $6 million, $4 million and $3 million, respectively in compensation expense related to Time RSUs.

Prior to 2017, the Performance RSUs were based on the achievement of an annual operating performance target. In periods prior to 2016, those targets also provided for “catch-up” vesting, if an annual performance target was not achieved. In 2017, the Company introduced a new Performance RSU that is based on certain year-over-year growth goals and return on invested capital. The Company also awarded Performance RSUs that were based on the achievement of the annual operating plan.

Performance RSUs that were based on the annual operating plan vest 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 (“RSU Agreements”).

The 2017 Performance RSUs, that were not based on the annual operating plan, were granted with cliff vesting, with share issuance at the end of a three-year performance period, contingent upon the achievement of specific performance goals established for each calendar year during the performance period. The number of shares that may be earned at the end of the vesting periods may range from zero to 200% of the target award amount based on the achievement of the performance goals.

The fair value of all Performance RSUs is measured at the market price on the date of grant, and recognized over the vesting period for the portion of the award that is expected to vest. Compensation expense for Performance RSUs is remeasured at each reporting period, based on management’s evaluation of whether it is probable that performance conditions will be met.

The Company recognized $3 million of compensation expense in 2017 for Performance RSUs, based on the achievement of the annual operating performance in 2017 and the portion of the Performance RSUs, that are not based on the annual operating plan, that are expected to vest. The Company achieved the annual operating performance targets in fiscal years 2016 and 2015 and recorded compensation charges of $4 million in each of those years. The fiscal year 2015 charge consisted of $3 million relating to fiscal year 2015, and $1 million related to Performance RSUs granted in fiscal year 2013 which met cumulative performance targets in fiscal year 2015.

The summary of nonvested RSUs outstanding and changes during fiscal year 2017 is presented below.

										Weighted-
										Average
	Time			Performance			Total			Fair
	RSUs			RSUs			RSUs			Value
Nonvested at December 31, 2016		637,336			242,273			879,609		$	17.68
Granted		607,432			296,456			903,888		$	29.77
Vested		(213,879	)		(213,695	)		(427,574	)	$	16.64
Forfeited		(121,597	)		(48,481	)		(170,078	)	$	20.76
Nonvested at December 30, 2017		909,292			276,553			1,185,845		$	26.79

The weighted-average grant date fair values for RSUs granted in fiscal years 2017, 2016, and 2015 was $29.77, $18.75, and $17.87, respectively.

At December 30, 2017, there was $24 million of unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 2 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 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 are settled in cash upon vesting and, accordingly, are considered liability instruments. No EARs were granted during fiscal years 2017, 2016 and 2015. During 2017, 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, which are not considered probable, no compensation costs have been recorded to date for the outstanding EARs, and as such, no liability has been recognized. As of December 30, 2017, there were a total of 378,658 EARs outstanding with a weighted average exercise price of $9.80 per share.