NOTE CSTOCK-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 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.

A reconciliation of the number of options outstanding and exercisable (in thousands) as of July 27, 2014, 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 27, 2013	18,466		$	22.09
Granted	1,400		45.43
Exercised	1,860		17.48
Forfeited	17		32.56
Outstanding at July 27, 2014	17,989		$	24.37	5.5 years		$	419,989
Exercisable at July 27, 2014	13,031		$	20.61	4.4 years		$	353,319

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 2014 and 2013 are as follows:

	Three Months Ended				Nine Months Ended
	July 27, 2014		July 28, 2013		July 27, 2014		July 28, 2013
Weighted-average grant date fair value of options granted	$	10.52	$	7.75	$	9.70	$	5.50
Intrinsic value of exercised options	$	23,512	$	2,591	$	55,481	$	65,244

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		Nine Months Ended
	July 27, 2014	July 28, 2013	July 27, 2014	July 28, 2013
Risk-Free Interest Rate	2.6%	1.4%	2.5%	1.4%
Dividend Yield	1.7%	1.7%	1.8%	2.1%
Stock Price Volatility	20.0%	20.0%	20.0%	20.0%
Expected Option Life	8 years	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.

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 27, 2014, and changes during the nine months then ended, is as follows:

	Shares	Weighted- Average Grant- Date Fair Value
Nonvested at October 27, 2013	112	$	24.77
Granted	33		43.46
Vested	75		27.35
Forfeited	5		19.56
Nonvested at July 27, 2014	65	$	31.74

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 2014 and 2013 are as follows:

	Nine Months Ended
	July 27, 2014			July 28, 2013
Weighted-average grant date fair value		$	43.46		$	35.42
Fair value of nonvested shares granted		$	1,440		$	1,600
Fair value of shares vested		$	2,056		$	1,758

Stock-based compensation expense, along with the related income tax benefit, for the third quarter and first nine months of fiscal years 2014 and 2013 is presented in the table below.

	Three Months Ended		Nine Months Ended
(in thousands)	July 27, 2014	July 28, 2013	July 27, 2014	July 28, 2013
Stock-based compensation expense recognized	$ 1,746	$ 4,523	$ 12,690	$ 16,429
Income tax benefit recognized	(663)	(1,710)	(4,822)	(6,212)
After-tax stock-based compensation expense	$ 1,083	$ 2,813	$ 7,868	$ 10,217

At July 27, 2014, there was $9.6 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 2.7 years. During the third quarter and nine months ended July 27, 2014, cash received from stock option exercises was $3.0 million and $8.5 million, respectively, compared to $0.7 million and $29.3 million for the third quarter and nine months ended July 28, 2013. The total tax benefit to be realized for tax deductions from these option exercises for the third quarter and nine months ended July 27, 2014, was $8.9 million and $21.0 million, respectively, compared to $1.0 million and $24.7 million in the comparable periods in fiscal 2013.

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.