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

September 2, 2017

and

August 27, 2016

was calculated using the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	September 2, 2017		August 27, 2016				September 2, 2017				August 27, 2016
Expected life (in years)		4.75			4.75				4.75				4.74
Weighted-average expected volatility		23.91%			26.77%				24.84%				28.96%
Expected volatility		23.91%		25.71%	-	27.10%		23.91%	-	24.88%		25.71%	-	29.23%
Risk-free interest rate		1.85%			0.98%				1.89%				1.43%
Expected dividend yield		1.15%			1.26%				1.12%				1.54%
Weighted-average fair value of grants		$10.58			$9.38				$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-base

d compensation expense of

$3,191

and

$2,501

was included in our Condensed Consolidated Statements of Income for the

third

quarter ended

September 2, 2017

and

August 27, 2016,

respectively. Total share-based compensation expense of

$12,034

and

$9,469

was included in our Condensed Consolidated Statements of Income for the

nine

months ended

September 2, 2017

and

August 27, 2016,

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

third

quarter ended

September 2, 2017

and

August 27, 2016,

there was

$151

and

$870

of excess tax benefit recognized. For the

nine

months ended

September 2, 2017

and

August 27, 2016,

there was

$1,504

and

$1,462

of excess tax benefit recognized.

As of

September 2, 2017,

there was

$8,818

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

1.1

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

$14,376,

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

1.2

years.

Stock Option Activity

The stock option activity for the

nine

months ended

September 2, 2017

is presented below:

				Average
	Options			Exercise Price
Outstanding at December 3, 2016		2,986,481		$	34.92
Granted		721,904			50.04
Exercised		(437,694	)		37.39
Forfeited or cancelled		(89,589	)		36.69
Outstanding at September 2, 2017		3,181,102		$	38.39

The total fair value of options granted during the quarter

ended

September 2, 2017

and

August 27, 2016

was

$46

and

$47,

respectively. Total intrinsic value of options exercised during the

third

quarter ended

September 2, 2017

and

August 27, 2016

was

$474

and

$3,365,

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

September 2, 2017

and

August 27, 2016

were

$7,803

and

$6,509,

respectively. Total intrinsic value of options exercised during the

nine

months ended

September 2, 2017

and

August 27, 2016

were

$7,099

and

$5,114,

respectively.

Proceeds received from option exercises during the

third

quarter ended

September 2, 2017

and

August 27, 2016

was

$1,107

and

$2,677,

respectively

, and

$15,033

and

$9,760

during the

nine

months ended

September 2, 2017

and

August 27, 2016.

Restricted Stock Activity

The nonvested restricted stock activity

for the

nine

months ended

September 2, 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		284,598			-			284,598			50.71		1.4
Vested		(154,516	)		(36,953	)		(191,469	)		39.92		-
Forfeited		(20,597	)		-			(20,597	)		39.06		1.3
Nonvested at September 2, 2017		462,229			-			462,229		$	44.72		1.2

Total fair

value of restricted stock vested during the

third

quarter ended

September 2, 2017

and

August 27, 2016

was

$250

and

$25,

respectively. Total fair value of restricted stock vested during the

nine

months ended

September 2, 2017

and

August 27, 2016

was

$7,643

and

$6,101,

respectively. The total fair value of nonvested restricted stock at

September 2, 2017

was

$21,240.

We repurchased

1,837

and

189

restricted stock shares during the

third

quarter ended

September 2, 2017

and

August 27, 2016,

respectively. We repurchased

55,646

and

67,742

restricted stock shares during the

nine

months ended

September 2, 2017

and

August 27,

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 unit activity for the

nine

months ended

September 2, 2017

is presented below:

	Non-employee
	Directors			Employees			Total
Units outstanding December 3, 2016		424,319			41,116			465,435
Participant contributions		23,864			5,053			28,917
Company match contributions		2,386			505			2,891
Payouts		(14,143	)		(12,552	)		(26,695	)
Units outstanding September 2, 2017		436,426			34,122			470,548

Deferred

compensation units are fully vested at the date of contribution.