STOCK-BASED COMPENSATION

9 Months Ended

Jul. 31, 2011

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

NOTE C                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 an exercise price equal to the market price of the common stock on the date of grant.  Options typically vest over periods ranging from six months to four years and expire ten years after the grant date.  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 first quarter of fiscal 2007, the Company made a one-time grant of 100 stock options (pre-split) to each active, full-time employee of the Company on January 8, 2007.  This grant was to vest upon the earlier of five years or attainment of a closing stock price of $50.00 per share (pre-split) for five consecutive trading days, and had an expiration of ten years after the grant date.  During the first quarter of fiscal 2011, the options vested after the stock attained the required closing price per share for five consecutive trading days.

A reconciliation of the number of options outstanding and exercisable (in thousands) as of July 31, 2011, and changes during the nine months then ended, is as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at October 31, 2010	22,048		$	16.47
Granted	2,648		24.95
Exercised	(4,437	)	15.34
Forfeitures	(20	)	18.71
Outstanding at July 31, 2011	20,239		$	17.83	5.9 years	$	225,536
Exercisable at July 31, 2011	13,967		$	16.54	4.7 years	$	173,653

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 2011 and 2010, are as follows:

	Three Months Ended				Nine Months Ended
	July 31, 2011		July 25, 2010		July 31, 2011		July 25, 2010
Weighted-average grant date fair value	N/A		N/A		$	5.54	$	4.55
Intrinsic value of exercised options	$	11,124	$	3,334	$	50,312	$	22,559

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.  No options were granted in the third quarter ending July 31, 2011, or July 25, 2010.

	Nine Months Ended
	July 31, 2011		July 25, 2010
Risk-Free Interest Rate	3.0	%	3.4	%
Dividend Yield	2.0	%	2.2	%
Stock Price Volatility	21.0	%	22.0	%
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 employee and non-employee director groups.

The Company’s nonvested shares granted on or before September 26, 2010, vest after five years or upon retirement. Nonvested shares granted after September 26, 2010, vest after one year. A reconciliation of the nonvested shares (in thousands) as of July 31, 2011, and changes during the nine months then ended, is as follows:

	Shares		Weighted- Average Grant- Date Fair Value
Nonvested at October 31, 2010	206		$	18.13
Granted	45		24.84
Vested	(20	)	16.77
Nonvested at July 31, 2011	231		19.55

No nonvested shares were granted or vested in the third quarter ended July 31, 2011, or July 25, 2010.  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 nine months of fiscal years 2011 and 2010, are as follows:

	Nine Months Ended
	July 31, 2011		July 25, 2010
Weighted-average grant date fair value	$	24.84	$	19.56
Fair value of nonvested shares granted	$	1,118	$	978
Fair value of shares vested	$	335	$	664

Stock-based compensation expense, along with the related income tax benefit, for the third quarter and first nine months of fiscal years 2011 and 2010 is presented in the table below.

	Three Months Ended						Nine Months Ended
(in thousands)	July 31, 2011			July 25, 2010			July 31, 2011			July 25, 2010
Stock-based compensation expense recognized	$	2,578		$	2,682		$	14,820		$	11,868
Income tax benefit recognized	(979		)	(1,028		)	(5,629		)	(4,548		)
After-tax stock-based compensation expense	$	1,599		$	1,654		$	9,191		$	7,320

At July 31, 2011, there was $14.5 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 2.7 years.  During the third quarter and nine months ended July 31, 2011, cash received from stock option exercises was $6.8 million and $50.5 million, compared to $2.6 million and $16.8 million for the third quarter and nine months ended July 25, 2010.  The total tax benefit to be realized for tax deductions from these option exercises for the third quarter and nine months ended July 31, 2011, was $4.2 million and $19.1 million, respectively, compared to $1.2 million and $8.6 million in the comparable periods in fiscal 2010.

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.