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. There were no options granted during the third quarter of 2015. The fair value of options granted during the three months ended August 27, 2016 and nine months ended August 27, 2016 and August 29, 2015 were calculated using the following weighted average assumptions:

	Three Months Ended			Nine Months Ended
	August 27, 2016			August 27, 2016			August 29, 2015
Expected life (in years)		4.75			4.74			4.61
Weighted-average expected volatility		26.77%			28.96%			30.91%
Expected volatility	25.71%	-	27.10%	25.71%	-	29.23%	25.50%	-	31.67%
Risk-free interest rate		0.98%			1.43%			1.26%
Expected dividend yield		1.26%			1.54%			1.17%
Weighted-average fair value of grants		$9.38			$7.72			$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 $2,501 and $3,006 was included in our Condensed Consolidated Statements of Income for the third quarter ended August 27, 2016 and August 29, 2015, respectively. Total share-based compensation expense of $9,469 and $10,325 was included in our Condensed Consolidated Statements of Income for the nine months ended August 27, 2016 and August 29, 2015, respectively. All share-based compensation expense was recorded as selling, general and administrative expense. For the third quarter ended August 27, 2016 and August 29, 2015 there was $870 and $411 of excess tax benefit recognized, respectively. For the nine months ended August 27, 2016 and August 29, 2015 there was $1,462 and $1,321 of excess tax benefit recognized, respectively.

As of August 27, 2016, there was $8,059 of unrecognized compensation costs related to unvested stock option awards, which is expected to be recognized over a weighted-average period of 1.2 years. Unrecognized compensation costs related to unvested restricted stock shares was $194 which is expected to be recognized over a weighted-average period of 0.4 years. Unrecognized compensation costs related to unvested restricted stock units was $9,120 which is expected to be recognized over a weighted-average period of 1.3 years.

Share-based Activity

A summary of option activity as of August 27, 2016 and changes during the nine months then ended is presented below:

				Weighted-
				Average
	Options			Exercise Price
Outstanding at November 28, 2015		2,912,073		$	33.37
Granted		844,033			33.86
Exercised		(539,165	)		24.05
Forfeited or cancelled		(164,337	)		39.37
Outstanding at August 27, 2016		3,052,604		$	34.82

There were no options granted during the third quarter ended August 29, 2015. The total fair value of options granted during the third quarter ended August 27, 2016 was $47. Total intrinsic value of options exercised during the third quarter ended August 27, 2016 and August 29, 2015 was $3,365 and $1,565, 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. The total fair value of options granted during the nine months ended August 27, 2016 and August 29, 2015 was $6,509 and $7,189, respectively. Total intrinsic value of options exercised during the nine months ended August 27, 2016 and August 29, 2015 was $10,641 and $5,114, respectively. Proceeds received from option exercises during the third quarter ended August 27, 2016 and August 29, 2015 were $2,676 and $391, respectively, and $9,759 and $4,342 during the nine months ended August 27, 2016 and August 29, 2015, respectively.

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

												Weighted-
										Weighted-		Average
										Average		Remaining
										Grant		Contractual
										Date Fair		Life
	Units			Shares			Total			Value		(in Years)
Nonvested at November 28, 2015		237,013			110,160			347,173		$	42.17		0.8
Granted		243,628			-			243,628			35.32		1.6
Vested		(104,051	)		(70,428	)		(174,479	)		41.88		-
Forfeited		(31,337	)		(179	)		(31,516	)		38.34		1.7
Nonvested at August 27, 2016		345,253			39,553			384,806		$	38.33		1.2

Total fair value of restricted stock vested during the third quarter ended August 27, 2016 and August 29, 2015 was $25 and $57, respectively. Total fair value of restricted stock vested during the nine months ended August 27, 2016 and August 29, 2015 was $6,101 and $6,121, respectively. The total fair value of nonvested restricted stock at August 27, 2016 was $14,934.

We repurchased 189 and 193 restricted stock shares during the third quarter ended August 27, 2016 and August 29, 2015, respectively and 67,742 and 54,196 during the nine months ended August 27, 2016 and August 29, 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 August 27, 2016, and changes during the nine months then ended is presented below:

	Non-employee
	Directors			Employees			Total
Units outstanding November 28, 2015		380,170			45,906			426,076
Participant contributions		35,678			4,379			40,057
Company match contributions		3,568			438			4,006
Payouts		(301	)		(7,834	)		(8,135	)
Units outstanding August 27, 2016		419,115			42,889			462,004

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