STOCK-BASED COMPENSATION

9 Months Ended

Jul. 28, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company issues stock options and restricted shares as part of its stock incentive plans for employees and non-employee directors. During the third quarter and nine months ended July 28, 2019, stock-based compensation expense was $3.2 million and $16.7 million, respectively, compared to $6.3 million and $17.7 million for the third quarter and nine months ended July 29, 2018, respectively.

At July 28, 2019, there was $31.3 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 2.8 years. During the third quarter and nine months ended July 28, 2019, cash received from stock option exercises was $3.8 million and $48.1 million, respectively, compared to $10.7 million and $40.7 million, for the third quarter and nine months ended July 29, 2018, respectively.

Shares issued for option exercises and restricted shares may be either authorized but unissued shares or shares of treasury stock.

Stock Options: 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 July 28, 2019, and changes during the nine months then ended, is as follows:



	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at October 28, 2018	29,536	$	23.55
Granted	1,809	44.37
Exercised	3,790	12.70
Forfeited	660	36.37
Expired	5	35.87
Outstanding at July 28, 2019	26,890	26.16		5.3	$	414,544
Exercisable at July 28, 2019	18,763	$	21.09	4.0	$	380,708

The weighted-average grant date fair value of stock options granted and the total intrinsic value of options exercised (in thousands) during the third quarter and first nine months of fiscal years 2019 and 2018, are as follows. There were no stock options granted during the third quarter of fiscal year 2019.



	Three Months Ended				Nine Months Ended
	July 28, 2019		July 29, 2018		July 28, 2019		July 29, 2018
Weighted-average grant date fair value	$	—	$	7.33	$	9.24	$	7.16
Intrinsic value of exercised options	$	7,308	$	25,136	$	115,094	$	96,950

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:



0.029	Three Months Ended			Nine Months Ended
	July 28, 2019	July 29, 2018		July 28, 2019		July 29, 2018
Risk-free interest rate	—	2.9	%	2.8	%	2.7	%
Dividend yield	—	2.1	%	1.9	%	2.1	%
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 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 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 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: Restricted shares awarded to non-employee directors annually on February 1 are subject to a restricted period which expires the date of the Company’s next annual stockholders meeting. Newly elected directors receive a prorated award of restricted shares of the Company's common stock, which expires on the date of the Company's second succeeding annual stockholders meeting. A reconciliation of the restricted shares (in thousands) as of July 28, 2019, and changes during the nine months then ended, is as follows:



	Shares	Weighted- Average Grant Date Fair Value
Restricted at October 28, 2018	52	$	34.08
Granted	51	42.23
Vested	52	34.08
Restricted at July 28, 2019	51	$	42.23

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 the first nine months of fiscal years 2019 and 2018, are as follows:



	Nine Months Ended
	July 28, 2019		July 29, 2018
Weighted-average grant date fair value	$	42.23	$	34.08
Fair value of restricted shares granted	2,134		1,760
Fair value of shares vested	1,760		2,053