STOCK-BASED COMPENSATION

3 Months Ended

Jan. 27, 2013

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 the 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 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 27, 2013, and changes during the quarter then ended, is as follows:

	Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at October 28, 2012	20,454	$	19.67
Granted	1,617	30.98
Exercised	2,878	15.15
Forfeitures	13	28.10
Outstanding at January 27, 2013	19,180	$	21.29	6.0 years	$	262,364
Exercisable at January 27, 2013	13,044	$	18.61	4.8 years	$	218,293

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 2013 and 2012, is as follows:

	Three Months Ended
	January 27, 2013		January 29, 2012
Weighted-average grant date fair value	$	5.10	$	5.75
Intrinsic value of exercised options	$	46,520	$	5,829

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 27, 2013	January 29, 2012
Risk-Free Interest Rate	1.3%	1.9%
Dividend Yield	2.2%	2.0%
Stock Price Volatility	20.0%	21.0%
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.  There were no changes to the balance of nonvested shares during the first quarter, with 139 thousand shares outstanding at a weighted-average fair value of $21.47 as of January 27, 2013.

No shares vested during the first quarter of fiscal year 2013, while the fair value of shares vested in the first quarter of 2012 was $0.7 million.

Stock-based compensation expense, along with the related income tax benefit, for the first quarter of fiscal years 2013 and 2012 is presented in the table below.

	Three Months Ended
(in thousands)	January 27, 2013		January 29, 2012
Stock-based compensation expense recognized	$	5,576	$	6,240
Less: Income tax benefit recognized	2,108		2,366
After-tax stock-based compensation expense	$	3,468	$	3,874

At January 27, 2013, there was $13.9 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 4.3 years.  During the quarter ended January 27, 2013, cash received from stock option exercises was $23.2 million compared to $3.9 million for the quarter ended January 29, 2012.  The total tax benefit to be realized for tax deductions from these option exercises for the quarter ended January 27, 2013, was $17.6 million compared to $2.2 million in the comparable quarter of fiscal 2012.

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.