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Note 9 - Accounting for Share-based Compensation

12 Months Ended

Nov. 30, 2019

Share-based Payment Arrangement [Text Block]

Note 9: 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, we no 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 10 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 55 and after 10 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 1,474,436 common shares available for grant as of November 30, 2019.

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 10 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 10 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 2019, 2018 and 2017 were calculated using the following assumptions:

2019

2018

2017

Expected life (in years)
4.75 4.75 4.75

Weighted-average expected volatility
24.26 % 23.31 % 24.17 %

Expected volatility range
23.88% - 24.76 % 23.18% - 23.58 % 23.48% - 24.88 %

Risk-free interest rate
1.34% - 2.55 % 2.38% - 2.95 % 1.80% - 1.99 %

Weighted-average expected dividend
1.40 % 1.14 % 1.07 %

Expected dividend yield range
1.25% - 1.45 % 1.12% - 1.24 % 1.02% - 1.16 %

Weighted-average fair value of grants
$ 9.76 $ 11.38 $ 11.49

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 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 $24,003, $17,113 and $17,503 for 2019, 2018 and 2017, respectively. All share-based compensation was recorded as SG&A expense.

As of November 30, 2019, $6,348 of unrecognized compensation costs related to unvested stock option awards is expected to be recognized over a weighted-average period of 0.8 years. Unrecognized compensation costs related to unvested restricted stock units was $7,477 which is expected to be recognized over a weighted-average period of 0.9 years.

Stock Option Activity

The stock option activity for the years ended November 30, 2019, December 1, 2018 and December 2, 2017 is summarized below:

Weighted-

Average

Options

Exercise Price

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

Granted
1,020,246 45.53

Exercised
(378,734 ) 28.74

Forfeited or cancelled
(47,308 ) 48.90

Outstanding at November 30, 2019
5,060,310 $ 46.04

The fair value of options granted during 2019, 2018 and 2017 was $9,956, $9,217 and $17,157, respectively. Total intrinsic value of options exercised during 2019, 2018 and 2017 was $7,590, $4,534 and $8,677, respectively. For options outstanding at November 30, 2019, the weighted-average remaining contractual life was 6.8 years and the aggregate intrinsic value was $28,160. There were 2,669,829 options exercisable at November 30, 2019, with a weighted-average remaining contractual life of 5.4 years and an aggregate intrinsic value of $23,850. 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 November 30, 2019, December 1, 2018 and December 2, 2017 were $10,885, $6,237 and $17,705, respectively. The Company’s actual tax benefits realized for the tax deductions related to the exercise of stock options for 2019, 2018 and 2017 was $1,298, $868 and $2,723, respectively.

Restricted Stock Activity

The nonvested restricted stock activity for the years ended November 30, 2019, December 1, 2018 and December 2, 2017 is summarized 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
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

Granted
302,132 - 302,132 44.29 2.2

Vested
(197,349 ) - (197,349 ) 45.45 -

Forfeited
(31,139 ) - (31,139 ) 43.37 0.4

Nonvested at November 30, 2019
487,997 - 487,997 $ 46.56 0.8

Total fair value of restricted stock vested during 2019, 2018, and 2017 was $8,970, $8,892 and $7,708, respectively. The total fair value of nonvested restricted stock at November 30, 2019 was $22,722.

We repurchased 73,043, 71,181 and 56,230 restricted stock shares during 2019, 2018 and 2017, 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 2019, 2018 and 2017 was $1,574, $2,649 and $3,059 respectively.

Deferred Compensation Activity

Deferred compensation units are fully vested at the date of contribution. The deferred compensation units outstanding for the years ended November 30, 2019, December 1, 2018 and December 2, 2017 is summarized below:

Non-employee

Directors

Employees

Total

Units outstanding December 3, 2016
424,319 41,116 465,435

Participant contributions
16,051 5,567 21,618

Company match contributions¹
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 contributions¹
20,053 759 20,812

Payouts
- (10,219 ) (10,219 )

Units outstanding December 1, 2018
479,787 29,735 509,522

Participant contributions
22,153 11,166 33,319

Company match contributions¹
23,720 1,117 24,837

Payouts
- (5,354 ) (5,354 )

Units outstanding November 30, 2019
525,660 36,664 562,324

¹ The non-employee directors’ company match includes 21,504 and 18,436 and 15,738 deferred compensation units paid as discretionary awards to all non-employee directors in 2019, 2018 and 2017, respectively.

The fair value of non-employee directors’ company matches for 2019, 2018 and 2017 was $167, $152 and $133, respectively. The fair value of the non-employee directors’ discretionary award was $1,035 for 2019 and 2018 and $805 for 2017. The fair value of employee company matches was $41, $27 and $26 for 2019, 2018 and 2017, respectively.