Stock-Based Compensation

9 Months Ended

Jun. 28, 2014

Stock-Based Compensation [Abstract]

Stock-Based Compensation

3. Stock-Based Compensation

The Company compensates officers, directors, and employees with stock-based compensation under the stock plan approved by the Company’s shareholders in 2011, and administered under the supervision of the Company’s Board of Directors. Prior to the fiscal year ended September 28, 2013, the Company’s historical practice was to grant an annual Company-wide award of stock options and restricted stock units to officers and employees in July. During the fiscal year ended September 28, 2013, in order to align the grants with a review of individual and Company performance, the timing of the Company-wide award was changed from July to December. As a result, during the first quarter of fiscal year 2014, the Company granted an award of approximately 331,000 stock options and approximately 70,000 restricted stock units to officers and employees Company-wide. The aggregate value of this award increased proportionately, compared to a normal annual Company-wide award, in order to compensate officers and employees for the delayed timing of the grant. The stock options vest proportionally on the first three anniversaries of the grant date and expire seven years from the grant date. The restricted stock units vest proportionally on the first three anniversaries of the grant date.

The stock options were granted at an exercise price equal to the closing market price of the Company’s stock on the date of grant. The fair value of stock options granted has been estimated as of the date of grant using the multiple option form of the Black-Scholes valuation model, based on the grant price and assumptions regarding the expected grant life, stock price volatility, dividends, and risk-free interest rates. Each vesting period of an option award is valued separately, with this value being recognized as expense evenly over the vesting period. The weighted average per share fair value of the stock options granted under the Company-wide award during the first quarter of fiscal year 2014 was $13.97. The weighted average assumptions used to determine the fair value of these stock options were as follows:

Expected life (in years)	4.0
Risk-free interest rate	1.0	%
Expected volatility	31.2	%
Dividend yield	1.8	%

The expected life represents the period that the stock option awards are expected to be outstanding and was determined based on historical and anticipated future exercise and expiration patterns.

The risk-free interest rate used is based on the yield of constant maturity U.S. Treasury bonds on the grant date with a remaining term equal to the expected life of the grant. The Company estimates stock price volatility based on a historical weekly price observation. The dividend yield assumption is based on the annualized current dividend divided by the share price on the grant date.

The weighted average per unit fair value of the restricted stock units granted under the Company-wide award during the first quarter of fiscal year 2014 was $62.52, representing the market value of the Company’s shares at the date of grant minus the present value of estimated forgone dividends over the vesting period. The proportionate value of restricted stock units associated with each vesting period is allocated to expense evenly over the vesting period.