Stock-Based Compensation

12 Months Ended

May 31, 2020

Share-based Payment Arrangement, Noncash Expense [Abstract]

STOCK-BASED COMPENSATION

In September 2015, our shareholders approved the Darden Restaurants, Inc. 2015 Omnibus Incentive Plan (2015 Plan). All equity grants subject to ASC Topic 718 after the date of approval are made under the 2015 Plan. No further equity grants after that date are permitted under the Darden Restaurants, Inc. 2002 Stock Incentive Plan, the RARE Hospitality International, Inc. Amended and Restated 2002 Long-Term Incentive Plan or any other prior stock option and/or stock grant plans (collectively, the Prior Plans). The 2015 Plan and the Prior Plans are administered by the Compensation Committee of the Board of Directors. The 2015 Plan provides for the issuance of up to 7.6 million common shares in connection with the granting of non-qualified stock options, restricted stock, restricted stock units (RSUs), performance-based restricted stock units (PRSUs) and other stock-based awards such as Darden stock units to employees, consultants and non-employee directors. There are outstanding awards under the Prior Plans that may still vest and be exercised in accordance with their terms. As of May 31, 2020, approximately 1.2 million shares may be issued under outstanding awards that were granted under the Prior Plans.

Stock-based compensation expense included in continuing operations was as follows:



	Fiscal Year Ended
(in millions)	May 31, 2020		May 26, 2019		May 27, 2018
Stock options	$	6.1	$	5.0	$	4.6
Restricted stock/restricted stock units	8.0		6.1		3.9
Darden stock units	19.6		33.0		20.1
Equity-settled performance-based restricted stock units	16.1		12.9		11.7
Employee stock purchase plan	1.8		1.5		1.3
Director compensation program/other	1.4		1.3		1.2
Total	$	53.0	$	59.8	$	42.8

Excess income tax benefits related to the exercise of stock options and vesting of other equity-settled stock-based compensation recognized in income tax expense from continuing operations was as follows:



	Fiscal Year Ended
(in millions)	May 31, 2020		May 26, 2019		May 27, 2018
Income tax benefits	$	10.0	$	19.5	$	12.0

The weighted-average fair value of non-qualified stock options and the related assumptions used in the Black-Scholes model to record stock-based compensation are as follows:



	Granted in Fiscal Year Ended
	May 31, 2020			May 26, 2019			May 27, 2018
Weighted-average fair value	$	19.94		$	18.78		$	14.63
Dividend yield	3.0		%	3.2		%	3.0		%
Expected volatility of stock	22.5		%	22.6		%	23.5		%
Risk-free interest rate	1.9		%	2.9		%	2.0		%
Expected option life (in years)	6.3			6.4			6.4
Weighted-average exercise price per share	$	124.24		$	107.05		$	85.83

The following table presents a summary of our stock option activity as of and for the year ended May 31, 2020:



	Options (in millions)	Weighted-Average Exercise Price Per Share	Weighted-Average Remaining Contractual Life (Yrs)	Aggregate Intrinsic Value (in millions)
Outstanding beginning of period	2.60	$62.5	6.22	$149.9
Options granted	0.31	124.24
Options exercised	(0.28)	43.84
Options canceled	(0.01)	101.93
Outstanding end of period	2.62	$71.77	5.87	$41.7
Exercisable	1.40	$50.2	4.23	$37.4

The total intrinsic value of options exercised during fiscal 2020, 2019 and 2018 was $21.3 million, $83.5 million and $43.1 million, respectively. Cash received from option exercises during fiscal 2020, 2019 and 2018 was $12.4 million, $52.2 million and $32.0 million, respectively. Stock options generally vest over 4 years and have a maximum contractual period of 10 years from the date of grant. We settle employee stock option exercises with authorized but unissued shares of Darden common stock.

As of May 31, 2020, there was $8.8 million of unrecognized compensation cost related to unvested stock options granted under our stock plans. This cost is expected to be recognized over a weighted-average period of 2.4 years. The total fair value of stock options that vested during fiscal 2020 was $6.1 million.

Restricted stock and RSUs are granted at a value equal to the market price of our common stock on the date of grant, and amortized over their service periods which generally range from one to four years. Restrictions with regard to restricted stock and RSUs lapse at the end of their service periods at which employees receive unrestricted shares of Darden stock.

The following table presents a summary of our restricted stock and RSU activity as of and for the fiscal year ended May 31, 2020:



	Shares (in millions)	Weighted-Average Grant Date Fair Value Per Share
Outstanding beginning of period	0.28	$85.67
Shares granted	0.07	122.92
Shares vested	(0.06)	68.71
Shares canceled	(0.01)	95.81
Outstanding end of period	0.28	$99.44

As of May 31, 2020, there was $9.4 million of unrecognized compensation cost related to unvested restricted stock and RSUs granted under our stock plans. This cost is expected to be recognized over a weighted-average period of 1.6 years. The total

fair value of restricted stock and RSUs that vested during fiscal 2020, 2019 and 2018 was $4.6 million, $2.3 million and $2.9 million, respectively.

Darden stock units are granted at a value equal to the market price of our common stock on the date of grant and will be settled in cash at the end of their vesting periods, which typically range from three to five years, at the then market price of our common stock. Compensation expense is measured based on the market price of our common stock each period, is amortized over the vesting period and the vested portion is carried as a liability on our accompanying consolidated balance sheets. We also entered into equity forward contracts to hedge the risk of changes in future cash flows associated with the unvested, unrecognized Darden stock units granted (see Note 7 for additional information).

The following table presents a summary of our Darden stock unit activity as of and for the fiscal year ended May 31, 2020:



(All units settled in cash)	Units (in millions)	Weighted-Average Fair Value Per Unit
Outstanding beginning of period	1.20	$120.13
Units granted	0.19	124.22
Units vested	(0.29)	122.17
Units canceled	(0.07)	89.82
Outstanding end of period	1.03	$76.86

As of May 31, 2020, our total Darden stock unit liability was $49.1 million, including $27.7 million recorded in other current liabilities and $21.4 million recorded in other liabilities on our consolidated balance sheets. As of May 26, 2019, our total Darden stock unit liability was $80.6 million, including $30.7 million recorded in other current liabilities and $49.9 million recorded in other liabilities on our consolidated balance sheets.

Based on the value of our common stock as of May 31, 2020, there was $30.7 million of unrecognized compensation cost related to Darden stock units granted under our incentive plans. This cost is expected to be recognized over a weighted-average period of 2.3 years but the amount that vests is ultimately dependent on the value of Darden stock at the vesting date. The total fair value of Darden stock units that vested during fiscal 2020 was $33.9 million.

Relative total shareholder return PRSUs and absolute PRSUs vest over the service period which ranges from three to four years, and the number of units that actually vest is determined based on the achievement of performance criteria set forth in the award agreement. Relative total shareholder return PRSUs, which vest based on the achievement of market-based targets, are measured based on estimated fair value as of the date of grant using a Monte Carlo simulation, and amortized over the service period. Absolute PRSUs, which vest based on the achievement of company specific targets, are measured based on a value equal to the market price of our common stock on the date of grant, and amortized over the service period. Additionally, under special circumstances, Darden grants equity-settled PRSUs which are earned based on specific performance criteria. These PRSUs are measured based on a value equal to the market price of our common stock on the date of grant, and amortized over the service periods which generally range from two to five years.

The weighted-average grant date fair value of PRSUs and the related assumptions used in the Monte Carlo simulation to record stock-based compensation are as follows:



	Granted in Fiscal Year Ended
	May 31, 2020			May 26, 2019			May 27, 2018
Dividend yield (1)	0.0		%	0.0		%	0.0		%
Expected volatility of stock	23.1		%	23.4		%	21.5		%
Risk-free interest rate	1.8		%	2.7		%	1.5		%
Expected option life (in years)	2.9			2.9			2.9
Weighted-average grant date fair value per unit	$	98.16		$	100.72		$	90.51


(1)	Assumes a reinvestment of dividends.

The following table presents a summary of our equity-settled PRSU activity as of and for the fiscal year ended May 31, 2020:



	Units (in millions)	Weighted-Average Grant Date Fair Value Per Unit
Outstanding beginning of period	0.60	$84.11
Units granted	0.18	98.16
Units vested	(0.22)	62.17
Units canceled	(0.01)	84.90
Outstanding end of period	0.55	$97.03

As of May 31, 2020, there was $19.3 million of unrecognized compensation cost related to unvested equity-settled PRSUs granted under our stock plans. This cost is expected to be recognized over a weighted-average period of 2.1 years. The total fair value of equity-settled PRSUs that vested during fiscal 2020 was $13.4 million.

We maintain an Employee Stock Purchase Plan to provide eligible employees who have completed one year of service (excluding senior officers subject to Section 16(b) of the Securities Exchange Act of 1934, and certain other employees who are employed less than full time or own 5 percent or more of our capital stock or that of any subsidiary) an opportunity to invest up to $5.0 thousand per calendar quarter to purchase shares of our common stock, subject to certain limitations. Under the plan, up to an aggregate of 5.2 million shares are available for purchase by employees at a purchase price that is 85.0 percent of the fair market value of our common stock on either the first or last trading day of each calendar quarter, whichever is lower. Cash received from employees pursuant to the plan during fiscal 2020, 2019 and 2018 was $8.3 million, $7.1 million and $5.8 million, respectively.