Stock-Based Compensation

The Company issues stock options and restricted 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.

During the third quarter of fiscal 2018, the Company made a one-time grant of 200 stock options to each active, full-time employee and 100 stock options to each active, part-time employee of the Company on April 30, 2018. The options vest in five years and expire ten years after the grant date.

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



	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at October 29, 2017	30,685	$	18.08
Granted	6,272	36.39
Exercised	6,991	10.27
Forfeited	427	36.19
Expired	3	37.76
Outstanding at October 28, 2018	29,536	$	23.55	5.4	$	520,424
Exercisable at October 28, 2018	20,121	$	18.06	3.9	$	464,982

The weighted-average grant date fair value of stock options granted, and the total intrinsic value of options exercised (in thousands) during each of the past three fiscal years is as follows:



	Fiscal Year Ended
	October 28,		October 29,		October 30,
	2018		2017		2016
Weighted-average grant date fair value	$	7.16	$	6.41	$	7.82
Intrinsic value of exercised options	187,486		87,543		135,593

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:



	Fiscal Year Ended
	October 28,		October 29,		October 30,
	2018		2017		2016
Risk-free interest rate	2.7	%	2.4	%	2.1	%
Dividend yield	2.1	%	2.0	%	1.5	%
Stock price volatility	19.0	%	19.0	%	19.0	%
Expected option life	8 years		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 employee and non-employee director groups.

Restricted shares awarded on February 1 are subject to a restricted period which expires the date of the Company’s next annual

stockholders meeting. A reconciliation of the restricted shares (in thousands) as of October 28, 2018, and changes during the fiscal year then ended, is as follows:



	Shares	Weighted- Average Grant Date Fair Value
Restricted at October 29, 2017	58	$	35.62
Granted	52	34.08
Vested	57	35.62
Forfeited	1	35.62
Restricted at October 28, 2018	52	$	34.08

The weighted-average grant date fair value of restricted shares granted, the total fair value (in thousands) of restricted shares granted, and the fair value (in thousands) of shares that have vested during each of the past three fiscal years is as follows:



	Fiscal Year Ended
	October 28,		October 29,		October 30,
	2018		2017		2016
Weighted-average grant date fair value	$	34.08	$	35.62	$	41.01
Fair value of restricted shares granted	1,760		2,080		1,920
Fair value of shares vested	$	2,053	$	1,920	$	1,920

Stock-based compensation expense, along with the related income tax benefit, for each of the past three fiscal years is presented in the table below:



	Fiscal Year Ended
	October 28,			October 29,			October 30,
(in thousands)	2018			2017			2016
Stock-based compensation expense recognized	$	20,595		$	15,591		$	17,829
Income tax benefit recognized	(4,943		)	(5,879		)	(6,764		)
After-tax stock-based compensation expense	$	15,652		$	9,712		$	11,065

At October 28, 2018, there was $34.2 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 3.2 years. During fiscal years 2018, 2017, and 2016, cash received from stock option exercises was $71.8 million, $21.7 million, and $12.1 million, respectively.

Shares issued for option exercises and restricted shares may be either authorized but unissued shares, or shares of treasury stock acquired in the open market or otherwise. The number of shares available for future grants was 16.1 million at October 28, 2018, 46.7 million at October 29, 2017, and 48.1 million at October 30, 2016.