Note

Accounting for Share-Based Compensation

Overview

We have various share-based compensation progr

ams, 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 2, 2017.

During the

three

months ended

March 3, 2018,

we adopted ASU

No.

2016

09,

Improvements to Employee Share-Based Payment Accounting

. The adoption is required to be implemented prospectively. See Note

for additional information regarding ASU

No.

2016

09.

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

three

months ended

March 3, 2018

and

March 4, 2017

was calculated using the following weighted average assumptions:

	Three Months Ended
	March 3, 2018				March 4, 2017
Expected life (in years)			4.75				4.75
Weighted-average expected volatility			23.26%				24.87%
Expected volatility		23.18%	-	23.26%		24.84%	-	24.88%
Risk-free interest rate		2.38%	-	2.53%			1.89%
Expected dividend yield			1.12%				1.12%
Weighted-average fair value of grants			$11.37				$10.81

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

$5,651

and

$5,032

was included in our Condensed Consolidated Statements of Income for the

three

months ended

March 3, 2018

and

March 4, 2017,

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

three

months ended

March 3, 2018,

excess tax benefits are recorded as income tax expense in accordance with ASU

No.

2016

09.

For the

three

months ended

March 4, 2017,

there was

$1,053

of excess tax benefit recognized in additional paid-in capital.

As of

March 3, 2018,

there was

$19,196

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

1.8

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

$16,181,

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

1.6

years.

Stock Option Activity

The stock option activity for the

three

months

ended

March 3, 2018

is presented below:

				Average
	Options			Exercise Price
Outstanding at December 2, 2017		3,860,764		$	42.28
Granted		672,373			53.40
Exercised		(26,616	)		28.65
Forfeited or cancelled		(1,821	)		43.58
Outstanding at March 3, 2018		4,504,700		$	41.73

The fair value of options granted during the

three

months ended

March 3, 2018

and

March 4, 2017

was

$7,645

and

$7,384,

respectively.

Total intrinsic value of options exercised during the

three

months ended

March 3, 2018

and

March 4, 2017

was

$638

and

$4,420,

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

three

months ended

March 3, 2018

and

March 4, 2017

were

$762

and

$8,549,

respectively.

Restricted Stock Activity

The nonvested restricted stock activity for the

three

months ended

March 3, 2018

is presented below:

						Weighted-
				Weighted-		Average
				Average		Remaining
				Grant		Contractual
				Date Fair		Life
	Units			Value		(in Years)
Nonvested at December 2, 2017		462,241		$	44.80		1.0
Granted		132,634			53.56		2.9
Vested		(167,419	)		42.45		-
Forfeited		(848	)		45.34		1.6
Nonvested at March 3, 2018		426,608		$	47.63		1.6

Total fair

value of restricted stock vested during the

three

months ended

March 3, 2018

and

March 4, 2017

was

$7,900

and

$6,941,

respectively. The total fair value of nonvested restricted stock at

March 3, 2018

was

$20,320.

We repurchased

63,540

and

50,687

restricted stock shares during the

three

months ended

March 3, 2018

and

March 4, 2017,

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

three

months ended

March 3, 2018

is presented below:

	Non-employee
	Directors		Employees			Total
Units outstanding December 2, 2017		443,570		31,606			475,176
Participant contributions		4,041		2,891			6,932
Company match contributions		404		289			693
Payouts		-		(3,532	)		(3,532	)
Units outstanding March 3, 2018		448,015		31,254			479,269

Deferred compensation units are fully

vested at the date of contribution.