Note

: Accounting for Share-Based Compensation

Overview

We have various share-based compensation programs, which provide for equity awards including non-qualified 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 below. Starting in

2014,

longer grant restricted stock shares.

Share-based Compensation Plans

We currently grant stock options and restricted stock units under equity compensation and deferred compensation plans.

Stock options are granted to officers and key employees at prices

not

less than fair market value at the date of grant. Non-qualified stock options are generally exercisable beginning

one

year from the date of grant in cumulative yearly amounts of

33.3

percent. Incentive stock options are based on certain performance based criteria and are generally exercisable at a stated date when the performance criteria is measured. Stock options generally have a contractual term of

years. Options exercised represent newly issued shares.

Restricted stock awards are nonvested stock-based awards that

may

include grants of restricted stock shares or restricted stock units. Restricted stock awards are independent of option grants and are subject to forfeiture if employment terminates prior to the release of the restrictions. Such awards generally vest beginning

one

year from the date of grant or

33.3

percent per year for

three

years, depending on the grant. During the vesting period, ownership of the shares cannot be transferred.

Restricted stock shares granted represent newly issued shares and have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding. The cash dividends on restricted stock shares are forfeitable.

Restricted stock units have dividend equivalent rights equal to the cash dividend paid on restricted stock shares. However, restricted stock units do

not

have voting rights of common stock and are

not

considered issued and outstanding upon grant. Restricted stock units become newly issued shares when vested. The dividend equivalent rights for restricted stock units are forfeitable.

We expense the cost, which is the grant date fair market value, of both the restricted stock shares and the restricted stock units ratably over the period during which the restrictions lapse. The grant date fair value is our closing stock price on the date of grant.

We are required to recognize compensation expense when an employee is eligible to retire. We consider employees eligible to retire at age

and after

years of service. Accordingly, the related compensation expense is recognized immediately for awards granted to retirement eligible employees or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period.

2018

Master Incentive Plan

This plan allows for granting of awards to employees. The plan permits granting of (a) stock options; (b) stock appreciation rights; (c) restricted stock and restricted stock units; (d) performance awards; (e) dividend equivalents; (f) other awards based on our common stock, including shares for amounts employees deferred under the Key Employee Deferred Compensation Plan. There were

2,844,637

common shares available for grant as of

December 1, 2018.

Year

2016

Master Incentive Plan

This plan allows for granting of awards to employees. The plan permits granting of (a) stock options; (b) stock appreciation rights; (c) restricted stock awards; (d) performance awards; (e) dividend equivalents; and (f) other awards based on our common stock, including shares for amounts employees deferred under the Key Employee Deferred Compensation Plan.

2009

Directors’ Stock Incentive Plan

This plan permits granting of (a) shares for amounts non-employee directors defer under the Directors’ Deferred Compensation Plan and (b) discretionary grants of restricted stock, stock options, stock appreciation rights, performance awards and other stock awards.

Directors' Deferred Compensation Plan

This plan allows non-employee directors to defer all or a portion of their retainer and meeting fees in a number of investment choices, including units representing shares of our common stock. We provide a

percent match on deferred compensation invested in these units. These units are required to be paid out in our common stock.

Key Employee Deferred Compensation Plan

This plan allows key employees to defer a portion of their eligible compensation in a number of investment choices, including units representing shares of company common stock. We provide a

percent match on deferred compensation invested in these units.

Grant-Date Fair Value

We use the Black-Scholes option-pricing model to calculate the grant-date fair value of stock option awards. The fair value of options granted during

2018,

2017

and

2016

were calculated using the following assumptions:

	2018					2017					2016
Expected life (in years)				4.75					4.75					4.75
Weighted-average expected volatility				23.31	%				24.17	%				28.95	%
Expected volatility range		23.18%	-	23.58	%		23.48%	-	24.88	%		24.86%	-	29.23	%
Risk-free interest rate		2.38%	-	2.95	%		1.80%	-	1.99	%		0.96%	-	1.44	%
Weighted-average expected dividend				1.14	%				1.07	%				1.54	%
Expected dividend yield range		1.12%	-	1.24	%		1.02%	-	1.16	%		1.20%	-	1.56	%
Weighted-average fair value of grants	$			11.38		$			11.49		$			7.75

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 its future volatility will differ from the past.

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 was

$17,113,

$17,503

and

$13,344

for

2018,

2017

and

2016,

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

During the

first

quarter of

2018,

we adopted ASU

No.

2016

09,

Improvements to Employee Share-Based Payment Accounting.

The adoption is required to be implemented prospectively. Upon adoption of this ASU, the benefits of tax deductions in excess of recognized compensation costs (excess tax benefits) are recorded as income tax expense in accordance with ASU

No.

2016

09.

Excess tax benefits of

$1,047

were recorded as a reduction to income tax expense for

2018.

Previously, the excess tax benefits were recorded in additional paid in capital (“APIC”) and were recorded as a financing cash inflow rather than a deduction of taxes paid. For

2017

and

2016,

there was

$2,010

and

$1,641

of excess tax benefit recognized resulting from share-based compensation cost, respectively. See Note

for additional information regarding ASU

No.

2016

09.

As of

December 1, 2018,

$7,212

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

1.2

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

$9,575

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

1.0

years.

Stock Option Activity

The stock option activity for the years ended

December 1, 2018,

December 2, 2017

and

December 3, 2016

is summarized below:

				Weighted-
				Average
	Options			Exercise Price
Outstanding at November 28, 2015		2,912,073		$	30.37
Granted		853,516			33.98
Exercised		(593,891	)		24.38
Forfeited or cancelled		(185,217	)		39.91
Outstanding at December 3, 2016		2,986,481		$	34.92
Granted		1,493,133			53.97
Exercised		(514,064	)		34.51
Forfeited or cancelled		(104,786	)		37.20
Outstanding at December 2, 2017		3,860,764		$	42.28

Granted		818,537			53.06
Exercised		(198,849	)		31.37
Forfeited or cancelled		(14,346	)		48.62
Outstanding at December 1, 2018		4,466,106		$	44.72

October 20, 2017,

in connection with the closing of the Royal Adhesives acquisition, grants of performance-based non-qualified stock options were made to executive officers at certain target level amounts. On

May 15, 2018,

additional grants of performance-based non-qualified stock options were made to certain members of management other than the executive officers at the same target level amounts. Target level non-qualified stock options amounts

may

increase to

150%

of the target amount based on fiscal year

2020

adjusted EBITDA performance. The performance-based non-qualified stock options agreement provides for cliff vesting in the event that fiscal year

2020

adjusted EBITDA (defined as Adjusted Operating Income plus Depreciation plus Amortization) performance criteria is met at least at a threshold level in order to promote the successful integration of the Royal Adhesives business into the Company’s operations.

The fair value of options granted during

2018,

2017

and

2016

was

$9,217,

$17,157

and

$6,615,

respectively. Total intrinsic value of options exercised during

2018,

2017

and

2016

was

$4,534,

$8,677

and

$11,675,

respectively. For options outstanding at

December 1, 2018,

the weighted-average remaining contractual life was

7.0

years and the aggregate intrinsic value was

$28,290.

There were

2,241,666

options exercisable at

December 1, 2018,

with a weighted-average remaining contractual life of

5.3

years and an aggregate intrinsic value of

$25,006.

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 year ended

December 1, 2018,

December 2, 2017

and

December 3, 2016

were

$6,237,

$17,705

and

$11,269,

respectively. The Company’s actual tax benefits realized for the tax deductions related to the exercise of stock options for

2018,

2017

and

2016

was

$868,

$2,723

and

$3,506,

respectively.

Restricted Stock Activity

The nonvested restricted stock activity for the years ended

December 1, 2018,

December 2, 2017

and

December 3, 2016

is summarized 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		253,515			-			253,515			35.40		1.3
Vested		(104,828	)		(73,028	)		(177,856	)		41.91		-
Forfeited		(32,956	)		(179	)		(33,135	)		38.40		1.5
Nonvested at December 3, 2016		352,744			36,953			389,697		$	38.36		1.0
Granted		287,684			-			287,684			50.05		1.2
Vested		(156,152	)		(36,953	)		(193,105	)		39.92		-
Forfeited		(22,035	)		-			(22,035	)		39.67		1.1
Nonvested at December 2, 2017		462,241			-			462,241		$	44.80		1.0
Granted		165,909			-			165,909			45.92		2.2
Vested		(209,137	)		-			(209,137	)		40.38		-
Forfeited		(4,660	)		-			(4,660	)		47.27		1.1
Nonvested at December 1, 2018		414,353			-			414,353		$	47.45		1.0

Total fair value of restricted stock vested during

2018,

2017,

and

2016

was

$8,892,

$7,708

and

$6,257,

respectively. The total fair value of nonvested restricted stock at

December 1, 2018

was

$19,661.

We repurchased

71,181,

56,230

and

67,807

restricted stock shares during

2018,

2017

and

2016,

respectively, in conjunction with restricted stock share vestings. The repurchases relate to statutory minimum tax withholding. The Company’s actual tax benefits realized for the tax deductions related to the restricted stock vested for

2018,

2017

and

2016

was

$2,649,

$3,059

and

$2,080

respectively.

Deferred Compensation Activity

Deferred compensation units are fully vested at the date of contribution. The deferred compensation units outstanding for the years ended

December 1, 2018,

December 2, 2017

and

December 3, 2016

is summarized below:

	Non-employee
	Directors			Employees			Total
Units outstanding November 28, 2015		380,170			45,906			426,076
Participant contributions		23,900			4,908			28,808
Company match contributions 1		20,576			491			21,067
Payouts		(327	)		(10,189	)		(10,516	)
Units outstanding December 3, 2016		424,319			41,116			465,435
Participant contributions		16,051			5,567			21,618
Company match contributions 1		17,343			557			17,900
Payouts		(14,143	)		(15,634	)		(29,777	)
Units outstanding December 2, 2017		443,570			31,606			475,176

Participant contributions		16,164			7,589			23,753
Company match contributions 1		20,053			759			20,812
Payouts		-			(10,219	)		(10,219	)
Units outstanding December 1, 2018		479,787			29,735			509,522

The non-employee directors’ company match includes

18,436

and

15,738

and

18,186

deferred compensation units paid as discretionary awards to all non-employee directors in

2018,

2017

and

2016,

respectively.

The fair value of non-employee directors’ company matches for

2018,

2017

and

2016

was

$152,

$133

and

$156,

respectively. The fair value of the non-employee directors’ discretionary award was

$1,035

for

2018,

$805

for

2017

and

$800

for

2016.

The fair value of employee company matches was

$27

for

2018

and

$26

for

2017

and

$18

for

2016.