STOCK-BASED COMPENSATION

The Company issues stock options and nonvested shares as part of its stock incentive plans for employees and non-employee directors. The Company’s policy is to grant options with the exercise price equal to the market price of the common stock on the date of grant. Options typically vest over four years and expire ten years after the date of the grant. The Company recognizes stock-based compensation expense ratably over the shorter of the requisite service period or vesting period. The fair value of stock-based compensation granted to retirement-eligible individuals is expensed at the time of grant.

A reconciliation of the number of options outstanding and exercisable (in thousands) as of January 28, 2018, and changes during the quarter then ended, is as follows:



	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at October 29, 2017	30,685	$	18.08
Granted	1,968	37.10
Exercised	2,301	10.20
Forfeited	3	33.31
Expired	1	37.76
Outstanding at January 28, 2018	30,348	$	19.91	5.0	$	460,530
Exercisable at January 28, 2018	24,284	$	16.34	4.1	$	448,268

The weighted-average grant date fair value of stock options granted and the total intrinsic value of options exercised (in thousands) during the first quarter of fiscal years 2018 and 2017, are as follows.



	Three Months Ended
	January 28, 2018		January 29, 2017
Weighted-average grant date fair value	$	6.93	$	6.33
Intrinsic value of exercised options	$	56,302	$	51,942

The fair value of each option award is calculated on the date of grant using the Black-Scholes valuation model utilizing the following weighted-average assumptions:



	Three Months Ended
	January 28, 2018		January 29, 2017
Risk-free interest rate	2.3	%	2.4	%
Dividend yield	2.0	%	2.0	%
Stock price volatility	19.0	%	19.0	%
Expected option life	8 years		8 years

As part of the annual valuation process, the Company reassesses the appropriateness of the inputs used in the valuation models. The Company establishes the risk-free interest rate using stripped U.S. Treasury yields as of the grant date where the remaining term is approximately the expected life of the option. The dividend yield is set based on the dividend rate approved by the Company’s Board of Directors and the stock price on the grant date. The expected volatility assumption is set based primarily on historical volatility. As a reasonableness test, implied volatility from exchange traded options is also examined to validate the volatility range obtained from the historical analysis. The expected life assumption is set based on an analysis of past exercise behavior by option holders. In performing the valuations for option grants, the Company has not stratified option holders as exercise behavior has historically been consistent across all executive employee and non-employee director groups.

Nonvested shares vest on the earlier of the day before the Company’s next annual meeting date or one year from grant date. Subsequent to the end of the quarter, restricted shares were awarded with a restricted period expiring the date of the Company’s next annual stockholders meeting.

A reconciliation of the nonvested shares (in thousands) as of January 28, 2018, and changes during the quarter then ended, is as follows:



	Shares	Weighted- Average Grant- Date Fair Value
Nonvested at October 29, 2017	58	$	35.62
Granted	—	—
Vested	3	35.62
Forfeited	1	35.62
Nonvested at January 28, 2018	54	$	35.62

The weighted-average grant date fair value of nonvested shares granted, the total fair value (in thousands) of nonvested shares granted, and the fair value (in thousands) of shares that have vested during the first quarter of fiscal years 2018 and 2017, are as follows:



	Three Months Ended
	January 28, 2018		January 29, 2017
Weighted-average grant date fair value	$	35.62	$	41.01
Fair value of nonvested shares granted	—		1,920
Fair value of shares vested	133		1,920

During the first quarter ended January 28, 2018, stock-based compensation expense was $7.3 million compared to $7.2 million for the first quarter ended January 29, 2017.

At January 28, 2018, there was $17.7 million of total unrecognized compensation expense from stock-based compensation arrangements granted under the plans. This compensation is expected to be recognized over a weighted-average period of approximately 2.6 years. During the first quarter ended January 28, 2018, cash received from stock option exercises was $23.5 million compared to $7.4 million for the first quarter ended January 29, 2017.

Shares issued for option exercises and nonvested shares may be either authorized but unissued shares, or shares of treasury stock acquired in the open market or otherwise.