Stock-Based Compensation

12 Months Ended

Oct. 27, 2019

Share-based Payment Arrangement [Abstract]

The Company issues stock options and restricted shares as part of its stock incentive plans for employees and non-employee directors. Stock-based compensation expense for fiscal years 2019, 2018, and 2017, was $19.7 million, $20.6 million, and $15.6 million, respectively.

At October 27, 2019, there was $27.6 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 fiscal years 2019, 2018, and 2017, cash received from stock option exercises was $59.9 million, $71.8 million, and $21.7 million, respectively.

Shares issued for option exercises and restricted shares may be either authorized but unissued shares, or shares of treasury stock. The number of shares available for future grants was 14.9 million at October 27, 2019, 16.1 million at October 28, 2018, and 46.7 million at October 29, 2017.

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.

Effective with fiscal 2020 grants, the Company has determined the equity award value for eligible employees will be delivered fifty percent in stock options as described above and fifty percent in time-vested restricted stock units with a three-year cliff vesting.

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 27, 2019, and changes during the fiscal year 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	4,599	13.03
Forfeited	747	36.40
Expired	5	35.87
Outstanding at October 27, 2019	25,994	$	26.49	5.2	$	372,979
Exercisable at October 27, 2019	17,955	$	21.38	3.8	$	344,595

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 27,		October 28,		October 29,
	2019		2018		2017
Weighted-average Grant Date Fair Value	$	9.24	$	7.16	$	6.41
Intrinsic Value of Exercised Options	138,282		187,486		87,543

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 27,		October 28,		October 29,
	2019		2018		2017
Risk-free Interest Rate	2.8	%	2.7	%	2.4	%
Dividend Yield	1.9	%	2.1	%	2.0	%
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 on February 1 are subject to a restricted period which expires at 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 October 27, 2019, and changes during the fiscal year 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 October 27, 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 each of the past three fiscal years is as follows:



	Fiscal Year Ended
	October 27,		October 28,		October 29,
	2019		2018		2017
Weighted-average Grant Date Fair Value	$	42.23	$	34.08	$	35.62
Fair Value of Restricted Shares Granted	2,134		1,760		2,080
Fair Value of Shares Vested	$	1,760	$	2,053	$	1,920