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Note 7 - Accounting for Share-based Compensation

3 Months Ended

Feb. 29, 2020

Share-based Payment Arrangement [Text Block]

Note 7: 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 in detail in our Annual Report on Form 10-K for the year ended November 30, 2019.

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 the three months ended February 29, 2020 and March 2, 2019 was calculated using the following weighted average assumptions:

	Three Months Ended
	February 29, 2020				March 2, 2019
Expected life (in years)			5.00				4.75
Weighted-average expected volatility			24.29%				24.25%
Expected volatility		24.29%	-	24.30%		24.25%	-	24.33%
Risk-free interest rate			1.50%			2.51%	-	2.55%
Weighted-average expected dividend yield			1.36%				1.40
Expected dividend yield range		1.35%	-	1.42%		1.26%	-	1.41%
Weighted-average fair value of grants			$9.76				$9.80

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 $4,703 and $5,906 for the three months ended February 29, 2020 and March 2, 2019, respectively. All share-based compensation expense was recorded as selling, general and administrative (SG&A) expense.

As of February 29, 2020, there was $13,766 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 $14,654, which is expected to be recognized over a weighted-average period of 1.4 years.

Stock Option Activity

The stock option activity for the three months ended February 29, 2020 is presented below:

Average

Options

Exercise Price

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

Granted
1,021,629 48.21

Exercised
(25,594 ) 35.44

Forfeited or cancelled
(73,601 ) 53.71

Outstanding at February 29, 2020
5,982,744 $ 46.36

The fair value of options granted during the three months ended February 29, 2020 and March 2, 2019 was $9,961 and $9,331, respectively. Total intrinsic value of options exercised during the three months ended February 29, 2020 and March 2, 2019 was $346 and $910, 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 February 29, 2020 and March 2, 2019 were $907 and $1,065, respectively.

Restricted Stock Activity

The nonvested restricted stock activity for the three months ended February 29, 2020 is presented below:

Weighted-

Weighted-

Average

Average

Remaining

Grant

Contractual

Date Fair

Life

Units

Value

(in Years)

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

Granted
205,383 47.90 2.9

Vested
(206,856 ) 46.73 -

Forfeited
(39,608 ) 47.73 2.5

Nonvested at February 29, 2020
446,916 $ 46.99 1.4

Total fair value of restricted stock vested during the three months ended February 29, 2020 and March 2, 2019 was $9,667 and $7,846, respectively. The total fair value of nonvested restricted stock at February 29, 2020 was $21,003.

We repurchased 66,598 and 57,917 restricted stock shares during the three months ended February 29, 2020 and March 2, 2019, 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 three months ended February 29, 2020 is presented below:

Non-employee

Directors

Employees

Total

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

Participant contributions
5,901 3,055 8,956

Company match contributions
590 306 896

Payouts
- (5,710 ) (5,710 )

Units outstanding February 29, 2020
532,151 34,315 566,466

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