Note 7 - Accounting for Share-based Compensation

9 Months Ended

Aug. 29, 2020

Notes to Financial Statements

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 nine months ended August 29, 2020 and August 31, 2019 was calculated using the following weighted average assumptions:

	Three Months Ended				Nine Months Ended
	August 29, 2020			August 31, 2019	August 29, 2020			August 31, 2019
Expected life (in years)		5.00		4.75		5.00			4.75
Weighted-average expected volatility		29.91%		23.88%		24.32%			24.26%
Expected volatility	29.35%	-	30.99%	23.88%	24.18%	-	30.99%	23.88%	-	24.76%
Risk-free interest rate		0.28%		1.68%	0.21%	-	1.51%	1.68%	-	2.55%
Weighted-average expected dividend yield		1.46%		1.38%		1.38%			1.40%
Expected dividend yield range	1.43%	-	1.48%	1.38%	1.35%	-	2.53%	1.26%	-	1.45%
Weighted-average fair value of grants		$9.92		$9.12		$9.63			$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 $4,851 and $5,998 for the three months ended August 29, 2020 and August 31, 2019, respectively and $14,087 and $21,657 for the nine months ended August 29, 2020 and August 31, 2019, respectively. All share-based compensation expense was recorded as selling, general and administrative (SG&A) expense.

As of August 29, 2020, there was $7,414 of unrecognized compensation costs related to unvested stock option awards, which is expected to be recognized over a weighted-average period of 0.8 years. Unrecognized compensation costs related to unvested restricted stock units was $6,699, which is expected to be recognized over a weighted-average period of 1.0 year.

Stock Option Activity

The stock option activity for the nine months ended August 29, 2020 is presented below:

				Average
	Options			Exercise Price
Outstanding at November 30, 2019		5,060,310		$	46.04
Granted		1,052,968			47.70
Exercised		(227,421	)		28.95
Forfeited or cancelled		(164,697	)		49.10
Outstanding at August 29, 2020		5,721,160		$	46.94

The fair value of options granted during the three months ended August 29, 2020 and August 31, 2019 was $55 and $12, respectively. Total intrinsic value of options exercised during the three months ended August 29, 2020 and August 31, 2019 was $3,016 and $806, 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 29, 2020 and August 31, 2019 was $10,132 and $9,426, respectively. Total intrinsic value of options exercised during the nine months ended August 29, 2020 and August 31, 2019 was $3,533 and $2,187, respectively.

Proceeds received from option exercises during the three months ended August 29, 2020 and August 31, 2019 were $5,010 and $658, respectively, and $6,567 and $2,495 during the nine months ended August 29, 2020 and August 31, 2019.

Restricted Stock Activity

The nonvested restricted stock activity for the nine months ended August 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		210,294			47.71		2.7
Vested		(208,116	)		47.85		-
Forfeited		(49,483	)		47.60		0.4
Nonvested at August 29, 2020		440,692		$	46.39		1.0

Total fair value of restricted stock vested during the three months ended August 29, 2020 and August 31, 2019 was $116 and $360, respectively. Total fair value of restricted stock vested during the nine months ended August 29, 2020 and August 31, 2019 was $9,958 and $8,641, respectively. The total fair value of nonvested restricted stock at August 29, 2020 was $20,443.

We repurchased 772 and 2,479 restricted stock shares during the three months ended August 29, 2020 and August 31, 2019, respectively, and repurchased 66,436 and 63,152 restricted stock shares during the nine months ended August 29, 2020 and August 31, 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 nine months ended August 29, 2020 is presented below:

	Non-employee
	Directors			Employees			Total
Units outstanding November 30, 2019		525,660			36,664			562,324
Participant contributions		35,851			15,786			51,637
Company match contributions		3,585			1,579			5,164
Payouts		(111,436	)		(12,536	)		(123,972	)
Units outstanding August 29, 2020		453,660			41,493			495,153

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