Note 6 - Accounting for Share-based Compensation

9 Months Ended

Aug. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note 6: 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 10-K for the year ended December 1, 2018.

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 and nine months ended August 31, 2019 and September 1, 2018 was calculated using the following weighted average assumptions:

	Three Months Ended		Nine Months Ended
	August 31, 2019	September 1, 2018	August 31, 2019			September 1, 2018
Expected life (in years)	4.75	4.75	4.75			4.75
Weighted-average expected volatility	23.88%	23.36%	24.26%			23.30%
Expected volatility	23.88%	23.36%	23.88%	-	24.76%	23.18%	-	23.58%
Risk-free interest rate	1.68%	2.72%	1.68%	-	2.55%	2.38%	-	2.90%
Weighted-average expected dividend yield	1.38%	1.16%	1.40%			1.14%
Expected dividend yield range	1.38%	1.16%	1.26%	-	1.45%	1.12%	-	1.24%
Weighted-average fair value of grants	$9.12	$11.75	$9.80			$11.38

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 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

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 $5,998 and $5,005 for the three months ended August 31, 2019 and September 1, 2018, respectively and $21,657 and $15,439 for the nine months ended August 31, 2019 and September 1, 2018, respectively. All share-based compensation expense was recorded as selling, general and administrative (SG&A) expense.

As of August 31, 2019, there was $7,493 of unrecognized compensation costs related to unvested stock option awards, which is expected to be recognized over a weighted-average period of 1.0 years. Unrecognized compensation costs related to unvested restricted stock units was $9,106, which is expected to be recognized over a weighted-average period of 1.0 years.

Stock Option Activity

The stock option activity for the nine months ended August 31, 2019 is presented below:

				Average
	Options			Exercise Price
Outstanding at December 1, 2018		4,466,106		$	44.72
Granted		962,130			45.47
Exercised		(96,740	)		25.79
Forfeited or cancelled		(30,036	)		48.73
Outstanding at August 31, 2019		5,301,460		$	45.18

The fair value of options granted during the three months ended August 31, 2019 and September 1, 2018 was $12 and $180, respectively. Total intrinsic value of options exercised during the three months ended August 31, 2019 and September 1, 2018 was $806 and $2,066, 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 fair value of options granted during the nine months ended August 31, 2019 and September 1, 2018 was $9,426 and $9,217, respectively. Total intrinsic value of options exercised during the nine months ended August 31, 2019 and September 1, 2018 was $2,187 and $3,876, respectively.

Proceeds received from option exercises during the three months ended August 31, 2019 and September 1, 2018 were $658 and $2,841, respectively and $2,495 and $5,228 during the nine months ended August 31, 2019 and September 1, 2018.

Restricted Stock Activity

The nonvested restricted stock activity for the nine months ended August 31, 2019 is presented below:

				Weighted-
		Weighted-		Average
		Average		Remaining
		Grant		Contractual
		Date Fair		Life
	Units	Value		(in Years)
Nonvested at December 1, 2018	414,353	$	47.45	1.0
Granted	288,719		44.16	2.4
Vested	(190,324)		45.40	-
Forfeited	(28,838)		40.56	0.6
Nonvested at August 31, 2019	483,910	$	46.70	1.0

Total fair value of restricted stock vested during the three months ended August 31, 2019 and September 1, 2018 was $360 and $278, respectively. Total fair value of restricted stock vested during the nine months ended August 31, 2019 and September 1, 2018 was $8,641 and $8,755, respectively. The total fair value of nonvested restricted stock at August 31, 2019 was $22,600.

We repurchased 2,479 and 1,945 restricted stock shares during the three months ended August 31, 2019 and September 1, 2018, respectively, and repurchased 63,152 and 68,881 restricted stock shares during the nine months ended August 31, 2019 and September 1, 2018, respectively, related 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 10 percent match on deferred compensation invested into units, representing shares of our common stock. The deferred compensation unit activity for the nine months ended August 31, 2019 is presented below:

	Non-employee
	Directors	Employees	Total
Units outstanding December 1, 2018	479,787	29,735	509,522
Participant contributions	16,900	8,495	25,395
Company match contributions	23,194	850	24,044
Payouts	-	(4,651)	(4,651)
Units outstanding August 31, 2019	519,881	34,429	554,310

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