Employee Benefit Plans

12 Months Ended

Dec. 30, 2017

Note 16 – Employee Benefit Plans

Stock-based Compensation

Our accompanying consolidated statements of income reflect pre-tax share-based compensation expense of $42.3 million ($23.7 million after-tax), $58.2 million ($41.4 million after-tax) and $44.6 million ($31.5 million after-tax) for the years ended December 30, 2017, December 31, 2016 and December 26, 2015.

Our accompanying consolidated statements of cash flows present our stock-based compensation expense as an adjustment to reconcile net income to net cash provided by operating activities for all periods presented. In the accompanying consolidated statements of cash flows, we presented $0.0 million, $(0.5) million and $2.2 million of benefits associated with tax deductions in excess of recognized compensation as a cash inflow from financing activities for the years ended December 30, 2017, December 31, 2016 and December 26, 2015.

Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. We measure stock-based compensation at the grant date, based on the estimated fair value of the award, and recognize the cost (net of estimated forfeitures) as compensation expense on a straight-line basis over the requisite service period. Our stock-based compensation expense is reflected in selling, general and administrative expenses in our consolidated statements of income.

Stock-based awards are provided to certain employees and non-employee directors under the terms of our 2013 Stock Incentive Plan, as amended, and our 2015 Non-Employee Director Stock Incentive Plan (together, the “Plans”). The Plans are administered by the Compensation Committee of the Board of Directors. Prior to March 2009, awards under the Plans principally included a combination of at-the-money stock options and restricted stock/units. Since March 2009, equity-based awards have been granted solely in the form of restricted stock/units, with the exception of providing stock options to employees pursuant to certain pre-existing contractual obligations. As of December 30, 2017, there were 62,458 shares authorized and 7,426 shares available to be granted under the 2013 Stock Incentive Plan and 1,800 shares authorized and 270 shares available to be granted under the 2015 Non-Employee Director Stock Incentive Plan.

Grants of restricted stock/units are stock-based awards granted to recipients with specified vesting provisions. In the case of restricted stock, common stock is delivered on the date of grant, subject to vesting conditions. In the case of restricted stock units, common stock is generally delivered on or following satisfaction of vesting conditions. We issue restricted stock/units that vest solely based on the recipient’s continued service over time (primarily four-year cliff vesting, except for grants made under the 2015 Non-Employee Director Stock Incentive Plan, which are primarily 12-month cliff vesting) and restricted stock/units that vest based on our achieving specified performance measurements and the recipient’s continued service over time (primarily three-year cliff vesting).

With respect to time-based restricted stock/units, we estimate the fair value on the date of grant based on our closing stock price. With respect to performance-based restricted stock/units, the number of shares that ultimately vest and are received by the recipient is based upon our performance as measured against specified targets over a specified period, as determined by the Compensation Committee of the Board of Directors. Although there is no guarantee that performance targets will be achieved, we estimate the fair value of performance-based restricted stock/units based on our closing stock price at time of grant.

The Plans provide for adjustments to the performance-based restricted stock/units targets for significant events, including, without limitation, acquisitions, divestitures, new business ventures, certain capital transactions (including share repurchases), restructuring costs, if any, changes in accounting principles or in applicable laws or regulations and certain foreign exchange fluctuations. Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the related compensation expense is adjusted upward or downward based upon our estimation of achieving such performance targets. The ultimate number of shares delivered to recipients and the related compensation cost recognized as an expense will be based on our actual performance metrics as defined under the Plans.

We record deferred income tax assets for awards that will result in future deductions on our income tax returns based on the amount of compensation cost recognized and our statutory tax rate in the jurisdiction in which we will receive a deduction.

During the first quarter of 2017, we adopted the provisions of ASU 2016-09 which requires that all excess tax benefits and tax deficiencies resulting from the difference between the deduction for tax purposes and the stock-based compensation cost recognized for financial reporting purposes be included as a component of income tax expense as of January 1, 2017. Prior to the implementation of ASU 2016-09, excess tax benefits were recorded as a component of Additional paid-in capital and tax deficiencies were recognized either as an offset to accumulated excess tax benefits or in the income statement if there were no accumulated excess tax benefits.

Stock-based compensation grants for the three years ended December 30, 2017 primarily consisted of restricted stock/unit grants. Certain stock-based compensation granted may require us to settle in the form of a cash payment. During the year ended December 30, 2017, we recorded a liability of $0.8 million relating to the grant date fair value of stock-based compensation to be settled in cash, as well as an expense of $0.0 million relating to the change in the fair value of these grants. The weighted-average grant date fair value of stock-based awards granted before forfeitures was $85.43, $83.90 and $70.40 per share during the years ended December 30, 2017, December 31, 2016 and December 26, 2015.

Total unrecognized compensation cost related to non-vested awards as of December 30, 2017 was $82.6 million, which is expected to be recognized over a weighted-average period of approximately 2.0 years.

A summary of the stock option activity under the Plans is presented below:

	Years Ended
	December 30,			December 31,			December 26,
	2017			2016			2015

		Weighted			Weighted			Weighted
		Average			Average			Average
		Exercise			Exercise			Exercise
	Shares	Price		Shares	Price		Shares	Price
Outstanding at beginning of year	353	$	28.59	769	$	28.00	1,367	$	26.71
Granted	-		-	-		-	-		-
Exercised	(198)		27.76	(416)		27.49	(598)		25.04
Forfeited	-		-	-		-	-		-
Outstanding at end of year	155	$	29.65	353	$	28.59	769	$	28.00

Options exercisable at end of year	155	$	29.65	353	$	28.59	769	$	28.00

During the years ended December 30, 2017, December 31, 2016 and December 26, 2015, we did not grant any stock options.

The following table represents the intrinsic values of:

	As of
	December 30,		December 31,		December 26,
	2017		2016		2015
Stock options outstanding	$	6,256	$	16,681	$	38,882
Stock options exercisable		6,256		16,681		38,882

The total cash received as a result of stock option exercises for the years ended December 30, 2017, December 31, 2016 and December 26, 2015 was approximately $5.3 million, $11.4 million and $14.9 million. In connection with these exercises, the tax benefits that we realized for the years ended December 30, 2017, December 31, 2016 and December 26, 2015 were $0.0 million, $23.4 million and $20.8 million. We settle employee stock option exercises with newly issued common shares.

The total intrinsic value per share of restricted stock/units that vested was $83.16, $81.86 and $71.60 during the years ended December 30, 2017, December 31, 2016 and December 26, 2015. The following table summarizes the status of our non-vested restricted stock/units for the year ended December 30, 2017:


	Time-Based Restricted Stock/Units
		Weighted Average
		Grant Date Fair		Intrinsic Value
	Shares/Units	Value Per Share		Per Share
Outstanding at beginning of period	1,339	$	60.54
Granted	297		85.29
Vested	(376)		47.19
Forfeited	(27)		74.47
Outstanding at end of period	1,233	$	70.28	$	69.88
	Performance-Based Restricted Stock/Units
		Weighted Average
		Grant Date Fair		Intrinsic Value
	Shares/Units	Value Per Share		Per Share
Outstanding at beginning of period	1,849	$	54.05
Granted	251		82.30
Vested	(852)		54.91
Forfeited	(22)		78.89
Outstanding at end of period	1,226	$	60.81	$	69.88

401(k) Plans

We offer qualified 401(k) plans to substantially all our domestic full-time employees. As determined by our Board of Directors, matching contributions to these plans generally do not exceed 100% of the participants’ contributions up to 7% of their base compensation, subject to applicable legal limits. Matching contributions consist of cash and were allocated entirely to the participants’ investment elections on file, subject to a 20% allocation limit to the Henry Schein Stock Fund. Forfeitures attributable to participants whose employment terminates prior to becoming fully vested are used to reduce our matching contributions and offset administrative expenses of the 401(k) plans.

Assets of the 401(k) and other defined contribution plans are held in self-directed accounts enabling participants to choose from various investment fund options. Matching contributions and administrative expenses related to these plans charged to operations during the years ended December 30, 2017, December 31, 2016 and December 26, 2015 amounted to $39.0 million, $33.9 million and $31.5 million.

Supplemental Executive Retirement Plan

We offer an unfunded, non-qualified supplemental executive retirement plan to eligible employees. This plan generally covers officers and certain highly-compensated employees after they have reached the maximum IRS allowed pre-tax 401(k) contribution limit. Our contributions to this plan are equal to the 401(k) employee-elected contribution percentage applied to base compensation for the portion of the year in which such employees are not eligible to make pre-tax contributions to the 401(k) plan. The amounts charged to operations during the years ended December 30, 2017, December 31, 2016 and December 26, 2015 amounted to $0.6 million, $0.3 million and $1.5 million.

Deferred Compensation Plan

During 2011, we began to offer a deferred compensation plan to a select group of management or highly compensated employees of the Company and certain associated companies. This plan allows for the elective deferral of base salary, bonus and/or commission compensation by eligible employees. The amounts charged to operations during the years ended December 30, 2017, December 31, 2016 and December 26, 2015 were approximately $5.0 million, $1.7 million and $0.1 million, respectively.