Stock-based Compensation

12 Months Ended

Apr. 25, 2020

Share-based Payment Arrangement [Abstract]

The consolidated statements of operations and other comprehensive (loss) income for fiscal 2020, 2019 and 2018 include pre-tax (after-tax) stock-based compensation expense of $22,935 ($17,789), $19,685 ($15,588) and $18,400 ($13,037), respectively. Pre-tax expense is included in operating expenses within the consolidated statements of operations and other comprehensive (loss) income.

As of April 25, 2020, the total unrecognized compensation cost related to non-vested awards was $24,461, and it is expected to be recognized over a weighted average period of approximately 1.5 years.

2015 Omnibus Incentive Plan

In September 2015, our shareholders approved the 2015 Omnibus Incentive Plan ("Incentive Plan"), which was amended and restated in September 2018. The aggregate number of shares of common stock that may be issued is 11,500. The Incentive Plan authorizes various award types to be issued under the plan, including stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, non-employee director awards, cash-based awards and other stock-based awards. We issue new shares for stock option exercises, restricted stock award grants and also for vesting of restricted stock units and performance stock units. Awards that expire or are canceled without delivery of shares generally become available for reissuance under the plan.

At April 25, 2020, there were 5,322 shares available for awards under the Incentive Plan.

As a result of the approval of the Incentive Plan, awards are no longer granted under any prior equity incentive plan, but all outstanding awards previously granted under such prior plans will remain outstanding and subject to the terms of such prior plans. At April 25, 2020, there were 447 shares outstanding under prior plans.

Inducement Awards

On June 29, 2018, we issued a combination of non-statutory stock options and restricted stock units outside our Incentive Plan to our Chief Financial Officer. The stock option covers 99 shares of our common stock, has an exercise price of $22.67 per share, and has a 10-year term. Such award will vest, assuming continued employment, to the extent of one-third of the award on the first anniversary of the date of grant, one-third of the award on the

second anniversary of the date of grant, and the remaining one-third of the award on the third anniversary of the date of grant. The restricted stock unit award covers 31 shares of our common stock. Such award will vest, assuming continued employment, to the extent of 50% of the award on the first anniversary of the date of grant and the remaining 50% of the award on the second anniversary of the date of grant.

On December 1, 2017, we issued a restricted stock unit award outside our Incentive Plan to our Chief Executive Officer. The award covers 56 shares of common stock and will vest, assuming continued employment, to the extent of 50% of the award on the first anniversary of the date of grant and the remaining 50% of the award on the second anniversary of the date of grant.

Stock Option Awards

Stock options granted to employees expire no later than ten years after the date of grant. Awards typically vest over three or five years.

The fair value of stock options granted was estimated as of the grant date using a Black-Scholes option-pricing model with the following assumptions:


	Fiscal Year Ended
	April 25, 2020			April 27, 2019			April 28, 2018
Expected dividend yield	4.7		%	4.5		%	2.2		%
Expected stock price volatility	26.8		%	24.6		%	21.6		%
Risk-free interest rate	1.8		%	2.9		%	1.9		%
Expected life (years)	6.0			6.2			6.6
Weighted average grant date fair value per share	$	3.37		$	3.66		$	8.18

The following is a summary of stock option activity:


	Number of Options	Weighted- Average Exercise Price		Aggregate Intrinsic Value
Balance as of April 27, 2019	1,556	$	39.96
Granted	1,318	22.22
Exercised	—	—
Canceled	(441)	46.94
Balance as of April 25, 2020	2,433	$	29.08	$	—
Vested or expected to vest as of April 25, 2020	2,349	$	29.28	$	—
Exercisable as of April 25, 2020	402	$	41.65	$	—

The weighted average remaining contractual lives of options outstanding and options exercisable as of April 25, 2020 were 8.1 and 5.9 years, respectively.

Related to stock options exercised, the intrinsic value, cash received and tax benefits realized were $2, $13 and $0, respectively, in fiscal 2019; and $88, $324 and $3, respectively, in fiscal 2018. No stock options were exercised in fiscal 2020.

Restricted Stock

Restricted stock awards and restricted stock units granted to employees generally vest over a three, five or seven year period. Certain restricted stock awards, which are held by branch managers, are subject to accelerated vesting provisions beginning three years after the grant date, based on certain operating goals. Restricted stock awards are also granted to non-employee directors annually and vest over one year. The grant date fair value of restricted stock awards and restricted stock units is based on the closing stock price on the day of the grant. The total fair value of restricted stock awards and restricted stock units that vested in fiscal 2020, 2019 and 2018 was $8,788, $5,683 and $6,939, respectively.

The following is a summary of restricted stock award activity:


	Restricted Stock Awards
	Shares	Weighted- Average Grant Date Fair Value
Outstanding at April 27, 2019	167	$	37.91
Granted	43	18.71
Vested	(93)	34.28
Forfeitures	(11)	43.43
Outstanding at April 25, 2020	106	$	32.71

The following is a summary of restricted stock unit activity:


	Restricted Stock Units
	Shares	Weighted- Average Grant Date Fair Value
Outstanding at April 27, 2019	1,125	$	30.97
Granted	508	22.11
Vested	(328)	31.24
Forfeitures	(89)	31.69
Outstanding at April 25, 2020	1,216	$	27.16

Performance Unit Awards

In fiscal 2020 and 2019, we granted performance unit awards to certain executives which are earned at the end of a three year period if certain operating goals are met. Accordingly, we recognize expense over the requisite service period based on the outcome that is probable for these awards. In fiscal 2018, we granted performance unit awards with a market-based condition to certain executives. The number of shares to be received at vesting will range from 0% - 200% of the target number of stock units based on Patterson's total shareholder return ("TSR") relative to the performance of companies in the S&P Midcap 400 Index measured over a three year period. We estimate the grant date fair value of the TSR awards using the Monte Carlo valuation model. No performance unit awards vested in fiscal 2020, 2019 or 2018. In fiscal 2020, it was determined that a portion of the operating goals established for performance unit awards granted in fiscal 2019 had been met and 120 shares will vest, assuming continued employment, at the end of the requisite service period.

The following is a summary of performance unit award activity at target:


	Performance Unit Awards
	Shares	Weighted- Average Grant Date Fair Value
Outstanding at April 27, 2019	285	$	34.86
Granted	151	22.25
Vested	—	—
Forfeitures and cancellations	(74)	50.80
Outstanding at April 25, 2020	362	$	26.38

Employee Stock Purchase Plan ("ESPP")

We sponsor an ESPP under which a total of 9,000 shares have been reserved for purchase by employees. Eligible employees may purchase shares at 85% of the lower of the fair market value of our common stock on the beginning of the annual offering period, or on the end of each quarterly purchase period, which occur on March 31, June 30, September 30 and December 31. The offering periods begin on January 1 of each calendar year and end on

December 31 of each calendar year. At April 25, 2020, there were 2,068 shares available for purchase under the ESPP.

We estimate the grant date fair value of shares purchased under our ESPP using the Black-Scholes option pricing valuation model with the following assumptions:


	Fiscal Year Ended
	April 25, 2020			April 27, 2019			April 28, 2018
Expected dividend yield	5.1		%	5.2		%	2.8		%
Expected stock price volatility	34.3		%	38.6		%	28.1		%
Risk-free interest rate	1.6		%	2.5		%	1.7		%
Expected life (years)	0.6			0.6			0.6
Weighted average grant date fair value per share	$	4.98		$	5.21		$	8.73

Capital Accumulation Plan ("CAP")

We also sponsored an employee CAP. A total of 6,000 shares of common stock were reserved for issuance under the CAP. Key employees of Patterson were eligible to participate by purchasing common stock through payroll deductions at 75% of the price of the common stock at the beginning of or the end of the calendar year, whichever was lower. The shares issued are restricted stock and are held in the custody of Patterson until the restrictions lapse. The restriction period is typically three years from the beginning of the plan year, and shares are subject to forfeiture provisions.

Effective September 5, 2018, our Board of Directors took the following irrevocable actions with respect to our CAP: (1) it immediately reduced the number of shares available for purchase under the CAP by 1,500, and (2) it terminated the CAP for new participants, effective January 1, 2019. At April 25, 2020, 274 shares were available for purchase under the CAP.

We estimated the grant date fair value of shares purchased under our CAP using the Black-Scholes option pricing valuation model with the following assumptions. No CAP shares were granted in fiscal 2020 or 2019.



	April 28, 2018
Expected dividend yield	2.8		%
Expected stock price volatility	24.4		%
Risk-free interest rate	1.8		%
Expected life (years)	1.0
Weighted average grant date fair value per share	$	12.98