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 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 July 26, 2015, 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 26, 2014	17,402	$ 24.61
Granted	1,514	52.55
Exercised	1,147	18.83
Forfeited	1	18.71

Outstanding at July 26, 2015	17,768	27.37	5.2 years	$ 536,506

Exercisable at July 26, 2015	13,469	$ 22.64	4.2 years	$ 470,362

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 2015 and 2014, are as follows:

	Three Months Ended				Nine Months Ended
	July 26, 2015		July 27, 2014		July 26, 2015		July 27, 2014
Weighted-average grant date fair value	$	10.11	$	10.52	$	9.84	$	9.70
Intrinsic value of exercised options	$	10,223	$	23,512	$	42,824	$	55,481

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 26, 2015	July 27, 2014	July 26, 2015	July 27, 2014
Risk-free interest rate	1.9%	2.6%	2.1%	2.5%
Dividend yield	1.8%	1.7%	1.9%	1.8%
Stock price volatility	19.0%	20.0%	19.0%	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 between September 27, 2010, and July 27, 2014, vest after one year. Nonvested shares granted on or after July 28, 2014, vest on the earlier of the day before the Company’s next annual meeting date or one year. A reconciliation of the nonvested shares (in thousands) as of July 26, 2015, and changes during the nine months then ended, is as follows:

	Shares	Weighted- Average Grant- Date Fair Value
Nonvested at October 26, 2014	70	$ 33.58
Granted	37	51.74
Vested	70	33.58

Nonvested at July 26, 2015	37	$ 51.74

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 2015 and 2014, are as follows:

	Nine Months Ended
	July 26, 2015	July 27, 2014
Weighted-average grant date fair value	$ 51.74	$ 43.46
Fair value of nonvested shares granted	$ 1,920	$ 1,440
Fair value of shares vested	$ 2,347	$ 2,056

Stock-based compensation expense, along with the related income tax benefit, for the third quarter and first nine months of fiscal years 2015 and 2014 is presented in the table below.

	Three Months Ended		Nine Months Ended
(in thousands)	July 26, 2015	July 27, 2014	July 26, 2015	July 27, 2014
Stock-based compensation expense recognized	$ 1,711	$ 1,746	$ 14,260	$ 12,690
Income tax benefit recognized	(649)	(663)	(5,414)	(4,822)

After-tax stock-based compensation expense	$ 1,062	$ 1,083	$ 8,846	$ 7,868

At July 26, 2015, there was $10.7 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 26, 2015, cash received from stock option exercises was $1.8 million and $7.8 million, respectively, compared to $3.0 million and $8.5 million for the third quarter and nine months ended July 27, 2014. The total tax benefit to be realized for tax deductions from these option exercises for the third quarter and nine months ended July 26, 2015, was $3.9 million and $16.3 million, respectively, compared to $8.9 million and $21.0 million in the comparable periods of fiscal 2014.

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.