NOTE KSTOCK-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 January 24, 2016, and changes during the quarter then ended, is as follows:

	Shares	Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at October 25, 2015	34,397	$ 13.83
Granted	1,745	37.76
Exercised	2,019	9.36
Forfeited	1	9.35

Outstanding at January 24, 2016	34,122	$ 15.32	5.3 years	$ 773,444

Exercisable at January 24, 2016	26,600	$ 12.37	4.4 years	$ 681,587

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 2016 and 2015 are as follows:

	Three Months Ended
	January 24, 2016	January 25, 2015
Weighted-average grant date fair value	$ 7.71	$ 5.04
Intrinsic value of exercised options	$ 58,052	$ 9,192

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 24, 2016	January 25, 2015
Risk-free interest rate	2.1%	2.2%
Dividend yield	1.5%	1.9%
Stock price volatility	19.0%	19.0%
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 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. There were no changes to the balance of nonvested shares during the first quarter, with 74 thousand shares outstanding at a weighted-average grant date fair value of $25.87 as of January 24, 2016.

Stock-based compensation expense, along with the related income tax benefit, for the first quarter of fiscal years 2016 and 2015 is presented in the table below.

	Three Months Ended
(in thousands)	January 24, 2016		January 25, 2015

Stock-based compensation expense recognized	$	7,162	$	5,524
Income tax benefit recognized	2,717		2,097

After-tax stock-based compensation expense	$	4,445	$	3,427

At January 24, 2016, there was $15.6 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 3.1 years. During the quarter ended January 24, 2016, cash received from stock option exercises was $3.5 million compared to $2.1 million for the quarter ended January 25, 2015. The total tax benefit to be realized for tax deductions from these option exercises for the quarter ended January 24, 2016, was $22.0 million compared to $3.5 million in the comparable quarter of fiscal 2015.

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.