Note

Accounting for Share-Based Compensation

Overview

We have various share-based compensation programs, which provide for equity awards including non-qualified stock options, restricted stock shares, restricted stock units, performance awards and deferred compensation. These equity awards fall under several plans and are described in detail in our Annual Report on Form

-K for the year ended

December

2016.

Grant-Date Fair Value

We use the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair value of options granted during the quarter ended

March

2017

and

February

27,

2016

were calculated using the following weighted average assumptions:

	Three Months Ended
	March 4, 2017				February 27, 2016
Expected life (in years)			4.75				4.75
Weighted-average expected volatility			24.87%				29.03%
Expected volatility		24.84%	-	24.88%		29.03%	-	29.23%
Risk-free interest rate			1.89%				1.44%
Expected dividend yield			1.12%				1.56%
Weighted-average fair value of grants			$10.81				$7.64

Expected life – We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation. We believe that this historical data is currently the best estimate of the expected term of a new option. We use a weighted-average expected life for all awards.

Expected volatility – Volatility is calculated using our stock’s historical volatility for the same period of time as the expected life. We have no reason to believe that our future volatility will differ materially from historical volatility.

Risk-free interest rate – The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.

Expected dividend yield – The calculation is based on the total expected annual dividend payout divided by the average stock price.

Expense

We use the straight-line attribution method to recognize share-based compensation expense for option awards, restricted stock shares and restricted stock units with graded and cliff vesting. Incentive stock options and performance awards are based on certain performance-based metrics and the expense is adjusted quarterly, based on our projections of the achievement of those metrics. The amount of share-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The expense is recognized over the requisite service period, which for us is the period between the grant date and the earlier of the award’s stated vesting term or the date the employee is eligible for early vesting based on the terms of the plans.

Total share-based compensation expense of

$5,032

and

$4,267

was included in our Condensed Consolidated Statements of Income for the

first

quarter ended

March

2017

and

February

27,

2016,

respectively. All share-based compensation expense was recorded as SG&A expense. For the

first

quarter ended

March

2017,

there was

$1,053

of excess tax benefit recognized. For the

first

quarter ended

February

27,

2016,

there was

$341

charged against the APIC pool for tax deficiencies.

As of

March

2017,

there was

$11,388

of unrecognized compensation costs related to unvested stock option awards, which is expected to be recognized over a weighted-average period of

1.6

years. Unrecognized compensation costs related to unvested restricted stock units was

$18,035,

which is expected to be recognized over a weighted-average period of

1.7

years.

Stock Option Activity

The stock option activity for the quarter ended

March

2017

is presented below:

				Average
	Options			Exercise Price
Outstanding at December 3, 2016		2,986,481		$	34.92
Granted		683,425			49.95
Exercised		(261,346	)		32.71
Forfeited or cancelled		(66,589	)		36.68
Outstanding at March 4, 2017		3,341,971		$	38.13

The total fair value of options granted during the quarter ended

March

2017

and

February

27,

2016

were

$7,384

and

$6,138,

respectively. Total intrinsic value of options exercised during the

first

quarter ended

March

2017

and

February

27,

2016

were

$4,420

and

$11,

respectively. Intrinsic value is the difference between our closing stock price on the respective trading day and the exercise price, multiplied by the number of options exercised. Proceeds received from option exercises during the

first

quarter ended

March

2017

and

February

27,

2016

was

$8,549

and

$32,

respectively.

Restricted Stock Activity

The nonvested restricted stock activity for the quarter ended

March

2017

is presented below:

											Weighted-
									Weighted-		Average
									Average		Remaining
									Grant		Contractual
									Date Fair		Life
	Units			Shares		Total			Value		(in Years)
Nonvested at December 3, 2016		352,744			36,953		389,697		$	38.36		1.0
Granted		278,043			-		278,043			49.68		1.9
Vested		(137,891	)		(36,953)		(174,844	)		39.62		-
Forfeited		(16,095	)		-		(16,095	)		37.15		1.6
Nonvested at March 4, 2017		476,801			-		476,801		$	44.54		1.7

Total fair value of restricted stock vested during the

first

quarter ended

March

2017

and

February

27,

2016

was

$6,941

and

$5,833,

respectively. The total fair value of nonvested restricted stock at

March

2017

was

$21,214.

We repurchased

50,687

and

66,447

restricted stock shares during the

first

quarter ended

March

2017

and

February

27,

2016,

respectively. The repurchases relate to statutory minimum tax withholding.

Deferred Compensation Activity

We have a Directors’ Deferred Compensation plan that allows non-employee directors to defer all or a portion of their directors’ compensation in a number of investment choices, including units representing shares of our common stock. We also have a Key Employee Deferred Compensation Plan that allows key employees to defer a portion of their eligible compensation in a number of investment choices, including units, representing shares of our common stock. We provide a

percent match on deferred compensation invested into units, representing shares of our common stock. The deferred compensation units activity for the quarter ended

March

2017

is presented below:

	Non-employee
	Directors			Employees			Total
Units outstanding December 3, 2016		424,319			41,116			465,435
Participant contributions		4,462			3,964			8,426
Company match contributions		446			397			843
Payouts		(13,818	)		(6,137	)		(19,955	)
Units outstanding March 4, 2017		415,409			39,340			454,749

Deferred compensation units are fully vested at the date of contribution.