Note

Accounting for Share-Based Compensation

Overview

We have various share-based compensation programs which provide for equity awards including non-qualified 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

-K for the year ended

December 3, 2016.

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

June 3, 2017

and

May 28, 2016

were calculated using the following weighted average assumptions:

	Three Months Ended								Six Months Ended
	June 3, 2017				May 28, 2016				June 3, 2017				May 28, 2016
Expected life (in years)			4.75				4.75				4.75				4.75
Weighted-average expected volatility			24.32%				28.55%				24.85%				29.01%
Expected volatility		24.31%	-	24.33%		28.00%	-	29.20%		24.31%	-	24.88%		28.00%	-	29.23%
Risk-free interest rate			1.81%				1.25%				1.89%				1.43%
Expected dividend yield			1.11%				1.27%				1.12%				1.55%
Weighted-average fair value of grants			$10.90				$9.81				$10.81				$7.72

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 stock’s historical volatility for the same period of time as the expected life. We have

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

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. The expense is recognized over the requisite service period, which for us is the period between the grant date and the earlier of the award’s stated vesting term or the date the employee is eligible for early vesting based on the terms of the plans.

Total share-based compensation expense of

$3,811

and

$2,701

was included in our Condensed Consolidated Statements of Income for the

second

quarter ended

June 3, 2017

and

May 28, 2016,

respectively. Total share-based compensation expense of

$8,843

and

$6,968

was included in our Condensed Consolidated Statements of Income for the

six

months ended

June 3, 2017

and

May 28, 2016,

respectively. All share-based compensation expense was recorded as SG&A expense. For the

second

quarter ended

June 3, 2017

and

May 28, 2016,

there was

$300

and

$933

of excess tax benefit recognized. For the

six

months ended

June 3, 2017

and

May 28, 2016,

there was

$1,353

and

$592

of excess tax benefit recognized.

As of

June 3, 2017,

there was

$10,198

of unrecognized compensation costs related to unvested stock option awards, which is expected to be recognized over a weighted-average period of

1.4

years. Unrecognized compensation costs related to unvested restricted stock units was

$16,463,

which is expected to be recognized over a weighted-average period of

1.5

years.

Stock Option Activity

The stock option activity for the

six

months ended

June 3, 2017

is presented below:

				Average
	Options			Exercise Price
Outstanding at December 3, 2016		2,986,481		$	34.92
Granted		717,596			50.04
Exercised		(407,288	)		34.19
Forfeited or cancelled		(74,113	)		36.84
Outstanding at June 3, 2017		3,222,676		$	38.34

The total fair value of options granted during the quarter ended

June 3, 2017

and

May 28, 2016

were

$373

and

$324,

respectively. Total intrinsic value of options exercised during the

second

quarter ended

June 3, 2017

and

May 28, 2016

were

$2,204

and

$7,265,

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

six

months ended

June 3, 2017

and

May 28, 2016

were

$7,757

and

$6,462,

respectively. Total intrinsic value of options exercised during the

six

months ended

June 3, 2017

and

May 28, 2016

were

$6,624

and

$7,276,

respectively.

Proceeds received from option exercises during the

second

quarter ended

June 3, 2017

and

May 28, 2016

was

$5,377

and

$7,051,

respectively, and

$13,926

and

$7,083

during the

six

months ended

June 3, 2017

and

May 28, 2016.

Restricted Stock Activity

The nonvested restricted stock activity for the quarter ended

June 3, 2017

is presented below:

												Weighted-
										Weighted-		Average
										Average		Remaining
										Grant		Contractual
										Date Fair		Life
	Units			Shares			Total			Value		(in Years)
Nonvested at December 3, 2016		352,744			36,953			389,697		$	38.36		1.0
Granted		281,507			-			281,507			51.31		1.7
Vested		(149,095	)		(36,953	)		(186,048	)		39.79		-
Forfeited		(17,400	)		-			(17,400	)		37.86		1.5
Nonvested at June 3, 2017		467,756			-			467,756		$	44.68		1.5

Total fair value of restricted stock vested during the

second

quarter ended

June 3, 2017

and

May 28, 2016

was

$432

and

$179,

respectively. Total fair value of restricted stock vested during the

six

months ended

June 3, 2017

and

May 28, 2016

was

$7,402

and

$6,012,

respectively. The total fair value of nonvested restricted stock at

June 3, 2017

was

$21,214.

We repurchased

3,122

and

1,106

restricted stock shares during the

second

quarter ended

June 3, 2017

and

May 28, 2016,

respectively. We repurchased

53,809

and

67,533

restricted stock shares during the

six

month ended

June 3, 2017

and

May 28, 2016,

respectively. The repurchases relate to statutory minimum tax withholding.

Deferred Compensation Activity

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

percent match on deferred compensation invested into units, representing shares of our common stock. The deferred compensation units activity for the

six

months ended

June 3, 2017

is presented below:

	Non-employee
	Directors			Employees			Total
Units outstanding December 3, 2016		424,319			41,116			465,435
Participant contributions		8,373			4,582			12,955
Company match contributions		837			458			1,295
Payouts		(14,143	)		(7,712	)		(21,855	)
Units outstanding June 3, 2017		419,386			38,444			457,830

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