NOTE 7. COMMON STOCK

Share Repurchases

We repurchased 1.2 million, 1.7 million and 2.8 million shares of our common stock during fiscal years 2015, 2014 and 2013 for $54.8 million, $70.5 million and $92.7 million, respectively, in the open market. The common stock was acquired under a $190 million share repurchase program approved by the Board of Directors in September 2013, which does not have an expiration date. There are no plans to terminate this program in the future, but repurchases will be suspended temporarily as we allocate free cash flow to debt service following the Welch Allyn acquisition. Repurchases may be made on the open market or via private transactions, and are used for general business purposes.

Stock-Based Compensation

We have stock-based compensation plans under which employees and non-employee directors may be granted options to purchase shares of Company common stock at the fair market value at the time of grant. In addition to stock options, we grant performance share units (“PSUs”) and RSUs to certain management level employees and vested deferred stock to non-employee directors. We also offer eligible employees the opportunity to buy shares of our common stock at a discount via an Employee Stock Purchase Plan (“ESPP”).

Our primary stock-based compensation program is the Stock Incentive Plan, which has been approved by our shareholders. Under the Stock Incentive Plan, we have a total of 15.3 million authorized shares. At September 30, 2015, 4.3 million shares were available for future grants under our stock-based compensation plans. We generally settle our stock-based awards with treasury shares. As of September 30, 2015, we had 23.3 million treasury shares available for use to settle stock-based awards.

The following table sets forth a summary of the annual stock-based compensation cost that was charged against income for all types of awards:

	Years Ended September 30
	2015			2014			2013

Total stock-based compensation cost (pre-tax)	$	25.0		$	18.0		$	13.5
Total income tax benefit		(7.5	)		(6.5	)		(4.9	)
Total stock-based compensation cost, net of tax	$	17.5		$	11.5		$	8.6

Stock Options

Stock options granted by our Compensation Committee under the Stock Incentive Plan are non-qualified stock options. These awards are generally granted with exercise prices equal to the average of the high and low prices of our common stock on the date of grant. They vest in equal annual installments over a three or four year period and the maximum contractual term is ten years. We use a Binomial option-pricing model to estimate the fair value of stock options, and compensation cost is recognized on a straight-line basis over the requisite service period.

The following table sets forth the weighted average fair value per share of stock options and the related valuation assumptions used in the determination of those fair values:

	Years Ended September 30
	2015			2014			2013
Weighted average fair value per share	$	12.83		$	11.91		$	7.91

Valuation assumptions:
Risk-free interest rate		1.6	%		1.3	%		0.6	%
Expected dividend yield		1.4	%		1.4	%		1.9	%
Expected volatility		35.0	%		36.1	%		40.2	%
Weighted average expected life		4.9 years			4.9 years			4.9 years

The risk-free interest rate is based upon observed U.S. Treasury interest rates appropriate for the term of our employee stock options. Expected dividend yield is based on the history and our expectation of dividend payouts. Expected volatility was based on our historical stock price volatility. Expected life represents the weighted average period the stock options are expected to remain outstanding and is a derived output of the Binomial model. The expected life of employee stock options is impacted by the above assumptions as well as the post-vesting forfeiture rate and the exercise factor used in the Binomial model. These two variables are based on the history of exercises and forfeitures for previous stock options granted by us.

The following table summarizes transactions under our stock option plans for fiscal year 2015:

Weighted

Average

Weighted

Average

Aggregate

Number of

Average

Remaining

Intrinsic

Exercise

Contractual

Value (1)

(in thousands)

Price

Term

(in millions)

Balance Outstanding at October 1, 2014

1,992

31.99

Granted

381

45.01

Exercised

(371

)

31.83

Cancelled/Forfeited

(101

)

36.63

Balance Outstanding at September 30, 2015

1,901

34.38

6.6 years

33.5

Exercisable at September 30, 2015

1,060

30.98

5.3 years

22.3

Options Expected to Vest

773

38.34

8.0 years

10.6

(1)

The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $51.99, as reported by the New York Stock Exchange on September 30, 2015. This amount, which changes continuously based on the fair value of our common stock, would have been received by the option holders had all option holders exercised their options as of the balance sheet date.

The total intrinsic value of options exercised during fiscal years 2015, 2014 and 2013 was $6.3 million, $4.6 million and $1.6 million.

As of September 30, 2015, there was $4.1 million of unrecognized compensation expense related to stock options granted under the Plan. This unrecognized compensation expense does not reflect a reduction for our estimate of potential forfeitures, and is expected to be recognized over a weighted average period of 2.4 years.

Restricted Stock Units

RSUs are granted to certain employees with fair values equal to the average of the high and low prices of our common stock on the date of grant, multiplied by the number of units granted. RSU grants are contingent upon continued employment and vest over periods ranging from one to four years. Dividends, payable in common stock equivalents, accrue on the grants and are subject to the same specified terms as the original grants, including the risk of forfeiture.

The following table summarizes transactions for our nonvested RSUs for fiscal year 2015:

				Weighted
	Number of			Average
	Share Units			Grant Date
	(in thousands)			Fair Value

Nonvested RSUs at October 1, 2014		431		$	34.92
Granted		351			47.85
Vested		(93	)		37.76
Forfeited		(55	)		35.90
Nonvested RSUs at September 30, 2015		634		$	41.35

As of September 30, 2015, there was $13.4 million of total unrecognized compensation expense related to nonvested RSUs granted under the Stock Incentive Plan. This unrecognized compensation expense does not reflect a reduction for our estimate of potential forfeitures, and is expected to be recognized over a weighted average period of 2 years. The total vest date fair value of shares that vested during fiscal years 2015, 2014 and 2013 was $4.3 million, $5.3 million and $5.4 million.

Performance Share Units

Our Compensation Committee grants PSUs to certain employees and these awards are subject to any stock dividends, stock splits, and other similar rights inuring to common stock, but unlike our RSUs are not entitled to dividend reinvestment. Vesting of the grants is contingent upon achievement of performance targets and corresponding service requirements.

The fair value of the PSUs is equal to the average of the high and low prices of our common stock on the date of grant, multiplied by the number of units granted. For PSUs with a market condition such as total shareholder return, the Monte-Carlo simulation method is used to determine fair value. The Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of our and the Peer Group's future expected stock prices.

The following table sets forth the weighted average fair value per share for PSUs and the related valuation assumptions used in the determination of those fair values. PSUs granted in both fiscal 2015 and 2014 are based on company-specific performance targets, with a total shareholder return collar, while grants in fiscal 2013 are based entirely on shareholder return targets.

	Years Ended September 30
		2015			2014			2013
Weighted average fair value per share		$	47.82		$	47.91		$	19.77

Valuation assumptions:
Risk-free interest rate			0.9	%		0.5	%		0.3	%
Expected dividend yield			0.0	%		0.0	%		0.0	%
Expected volatility			23.5	%		30.1	%		32.6	%

The basis for the assumptions listed above is similar to the valuation assumptions used for stock options, as discussed previously.

The following table summarizes transactions for our nonvested PSUs for fiscal 2015:

				Weighted
	Number of			Average
	Share Units			Grant Date
	(in thousands)			Fair Value

Nonvested PSUs as of October 1, 2014		586		$	29.98
Granted		331			49.27
Vested		(414	)		30.11
Cancelled		(76	)		24.57
Forfeited		(73	)		41.15
Nonvested PSUs at September 30, 2015		354		$	42.16

As of September 30, 2015, there was $10.2 million of unrecognized compensation expense related to PSUs granted under the Stock Incentive Plan based on the expected achievement of certain performance targets or market conditions. This unrecognized compensation expense does not reflect a reduction for our estimate of potential forfeitures, and is expected to be recognized by the end of fiscal 2017. The total vest date fair value of shares that vested during fiscal 2015 was $20.5 million.