Note 3: Accounting for Share-Based Compensation

Overview

We have various share-based compensation programs, which provide for equity awards including stock options, incentive stock options, restricted stock shares, restricted stock units, performance awards and deferred compensation. These equity awards fall under several plans and are described in detail in our Annual Report on Form 10-K for the year ended November 28, 2015.

Grant-Date Fair Value

We use the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair value of options granted during the quarter ended February 27, 2016 and February 28, 2015 were calculated using the following weighted average assumptions:

	Quarter Ended
	February 27, 2016				February 28, 2015
Expected life (in years)			4.75				4.61
Weighted-average expected volatility			29.03%				30.91%
Expected volatility		29.03%	-	29.23 %		25.50%	-	31.67%
Risk-free interest rate			1.44%				1.26%
Expected dividend yield			1.56%				1.17%
Weighted-average fair value of grants	$		7.64		$		10.21

Expected life – We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation. We believe that this historical data is currently the best estimate of the expected term of a new option. We use a weighted-average expected life for all awards.

Expected volatility – Volatility is calculated using our historical volatility for the same period of time as the expected life. We have no reason to believe that our future volatility will differ materially from historical volatility.

Risk-free interest rate – The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.

Expected dividend yield – The calculation is based on the total expected annual dividend payout divided by the average stock price.

Expense Recognition

We use the straight-line attribution method to recognize share-based compensation expense for option awards, restricted stock shares and restricted stock units with graded and cliff vesting. Incentive stock options and performance awards are based on certain performance-based metrics and the expense is adjusted quarterly, based on our projections of the achievement of those metrics. The amount of share-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.

Total share-based compensation expense of $4,267 and $4,261 was included in our Condensed Consolidated Statements of Income for the quarter ended February 27, 2016 and February 28, 2015, respectively. All share-based compensation expense was recorded as selling, general and administrative expense. For the quarter ended February 27, 2016, there was $341 charged against the APIC Pool for tax deficiencies. For the quarter ended February 28, 2015, there was $397 of excess tax benefit recognized.

As of February 27, 2016, there was $10,748 of unrecognized compensation costs related to unvested stock option awards, which is expected to be recognized over a weighted-average period of 1.6 years. Unrecognized compensation costs related to unvested restricted stock shares was $436 which is expected to be recognized over a weighted-average period of 0.9 years. Unrecognized compensation costs related to unvested restricted stock units was $11,631 which is expected to be recognized over a weighted-average period of 1.7 years.

Share-based Activity

A summary of option activity as of February 27, 2016 and changes during the quarter then ended is presented below:



	Options			Weighted- Average Exercise Price
Outstanding at November 28, 2015		2,912,073		$	33.37
Granted		803,869			33.40
Exercised		(1,206	)		26.79
Forfeited or cancelled		(86,897	)		37.57
Outstanding at February 27, 2016		3,627,839		$	33.28

The total fair value of options granted during the quarter ended February 27, 2016 and February 28, 2015 were $6,138 and $7,180, respectively. Total intrinsic value of options exercised during the quarter ended February 27, 2016 and February 28, 2015 were $11 and $1,326, respectively. Intrinsic value is the difference between our closing stock price on the respective trading day and the exercise price, multiplied by the number of options exercised. Proceeds received from option exercises during the quarter ended February 27, 2016 and February 28, 2015 were $32 and $1,684, respectively.

A summary of nonvested restricted stock as of February 27, 2016 and changes during the quarter then ended is presented below:

	Units			Shares			Total			Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Life (in Years)
Nonvested at November 28, 2015		237,013			110,160			347,173		$	42.17		0.8
Granted		203,668			-			203,668			33.65		2.1
Vested		(99,135	)		(68,737	)		(167,872	)		41.88		-
Forfeited		(19,942	)		(179	)		(20,121	)		38.11		2.3
Nonvested at February 27, 2016		321,604			41,244			362,848		$	37.78		1.6

Total fair value of restricted stock vested during the quarter ended February 27, 2016 and February 28, 2015 were $5,833 and $6,000, respectively. The total fair value of nonvested restricted stock at February 27, 2016 was $13,707.

We repurchased 66,447 and 53,917 restricted stock shares during the quarter ended February 27, 2016 and February 28, 2015, respectively. The repurchases relate to statutory minimum tax withholding.

We have a Directors’ Deferred Compensation plan that allows non-employee directors to defer all or a portion of their directors’ compensation in a number of investment choices, including units representing shares of our common stock. We also have a Key Employee Deferred Compensation Plan that allows key employees to defer a portion of their eligible compensation in a number of investment choices, including units, representing shares of our common stock. We provide a 10 percent match on deferred compensation invested into units, representing shares of our common stock. A summary of deferred compensation units as of February 27, 2016, and changes during the quarter then ended is presented below:

	Non-employee Directors		Employees			Total
Units outstanding November 28, 2015		380,170		45,906			426,076
Participant contributions		9,742		2,118			11,860
Company match contributions		975		212			1,187
Payouts		-		(4,351	)		(4,351	)
Units outstanding February 27, 2016		390,887		43,885			434,772

Deferred compensation units are fully vested at the date of contribution.