(6) Employee Benefits

(a)

Savings and Investment Plan - We have a profit sharing and retirement savings plan covering substantially all full-time U.S. employees. Profit sharing contributions to the plan, which are discretionary, are approved by the board of directors. The plan permits participants to contribute to the plan through salary reduction. Under terms of the plan, we match 50% of an employee’s contributions, up to maximum match of 3% of eligible compensation. Our discretionary and matching contributions to the plan amounted to approximately $1,539, $2,033 and $637, during fiscal 2013, 2012 and 2011, respectively.

(b)

Stock-Based Compensation Plans - During fiscal 2013, we had two active stock-based compensation plans, the 2004 Equity Compensation Plan, which became effective December 7, 2004, as amended (the “2004 Plan”) and the 2012 Stock Incentive Plan, which became effective January 25, 2012 (the “2012 Plan”). In addition, we have an Employee Stock Purchase Plan (the “ESP Plan”), which became effective October 1, 1997. Under the ESP Plan, we sell shares of stock to our full-time and part-time employees up to the number of shares equivalent to a 1% to 15% payroll deduction from an employee’s base salary plus an additional 5% dollar match of this deduction by Meridian.

Each of the 2004 Plan and 2012 Plan authorized the granting of new shares for options, restricted shares or restricted share units for up to 3,000 shares, with the non-granted portion of the 2004 Plan permitted to be carried forward and added to the 2012 Plan authorized limit. As of September 30, 2013, we have granted 2,256 and 191 shares under the 2004 Plan and 2012 Plan, respectively, thereby resulting in a remaining authorized limit of 3,553 shares. Options may be granted at exercise prices not less than 100% of the closing market value of the underlying common shares on the date of grant and have maximum terms up to ten years. Vesting schedules for options, restricted shares and restricted share units are established at the time of grant and may be set based on future service periods, achievement of performance targets, or a combination thereof. All options contain provisions restricting their transferability and limiting their exercise in the event of termination of employment or the disability or death of the optionee. We recognize compensation expense for all share-based payments made to employees, based upon the fair value of the share-based payment on the date of the grant.

During fiscal 2011, we granted approximately 214 restricted shares and restricted share units (with a weighted-average grant date fair value of $22.93 per share) to certain employees, with half of each employee’s grant being time-vested restricted shares or restricted share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for fiscal 2011. While dividend equivalents were paid on these shares and units throughout fiscal 2011, the target for fiscal 2011 was not met and the performance-based portion of the restricted shares and restricted share units granted during fiscal 2011 were cancelled.

During fiscal 2012, we granted approximately 210 restricted share units (with a weighted-average grant date fair value of $17.99 per share) to certain employees, generally with half of each employee’s grant being time-vested restricted share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for fiscal 2012. While dividend equivalents were paid on these units throughout fiscal 2012, the target for fiscal 2012 was not met and the performance-based portion of the restricted share units granted during fiscal 2012 were cancelled. Additionally, during fiscal 2012, we granted approximately 110 restricted share units (with a grant date fair value of $17.57 per share) and 1,035 options (with a weighted-average grant date fair value of $4.66 per option, as included in the options table below) to certain executive management employees to incentivize the achievement of Company revenue targets in advance of planned expectations. These awards can only be earned if specified cumulative revenue thresholds are met one fiscal quarter in advance of planned revenue expectations through fiscal 2015, with the three measurement dates for ratably earning one-third of the grant being (i) the 21-month period ending June 30, 2013; (ii) the 33-month period ending June 30, 2014; and (iii) the 45-month period ending June 30, 2015. As a result of the cumulative threshold for the 21-month period ended June 30, 2013 not having been met, one-third of the restricted share units and options granted have been cancelled.

Similar to previous years, during fiscal 2013, we granted approximately 204 restricted share units (with a weighted-average grant date fair value of $19.38 per share) to certain employees, with half of each employee’s grant being time-vested restricted share units vesting in total on the fourth anniversary of the grant date, and the remaining half being subject to attainment of a specified earnings target for fiscal 2013. While dividend equivalents were paid on these units throughout fiscal 2013, the target for fiscal 2013 was not met and the performance-based portion of the restricted share units granted during fiscal 2013 have been cancelled.

Giving effect to these grants, cancellations and certain other activities for restricted shares and restricted share units throughout the years, including conversions to common shares, forfeitures, and new hire and employee promotion grants, approximately 450 restricted shares and restricted share units remain outstanding as of September 30, 2013, with a weighted-average grant date fair value of $19.92 per share, a weighted-average remaining vesting period of 1.75 years and an aggregate intrinsic value of $10,704. The weighted-average grant date fair value of the approximate 15 restricted share units that vested during fiscal 2013 was $21.76 per share.

The amount of stock-based compensation expense reported was $2,502, $1,987 and $2,614 in fiscal 2013, 2012 and 2011, respectively. The fiscal 2013 expense is comprised of $336 related to stock options, $2,069 related to restricted shares and units, and $97 related to the granting of unrestricted common shares to two executive officers; the fiscal 2012 expense is comprised of $426 related to stock options and $1,561 related to restricted shares and units; and the fiscal 2011 expense is comprised of $495 related to stock options, $2,009 related to restricted shares and units, and $110 related to the granting of unrestricted common shares to a retiring director. The total income tax benefit recognized in the income statement for these stock-based compensation arrangements was $850, $588 and $865, for fiscal 2013, 2012 and 2011, respectively. As of September 30, 2013, we expect future stock compensation expense for unvested options and unvested restricted stock and units to total $191 and $1,959, respectively, which will be recognized during fiscal years 2014 through 2017.

We recognize compensation expense only for the portion of shares that we expect to vest. As such, we apply estimated forfeiture rates to our compensation expense calculations. These rates have been derived using historical forfeiture data, stratified by several employee groups. During fiscal 2013, 2012 and 2011, we recorded $93, $73 and $39, respectively, in stock compensation expense to adjust estimated forfeiture rates to actual.

We have elected to use the Black-Scholes option pricing model to determine grant-date fair value for stock options, with the following assumptions: (i) expected share price volatility based on the average of Meridian’s historical volatility over the options’ expected lives and implied volatility based on the value of tradable call options; (ii) expected life of options based on contractual lives, employees’ historical exercise behavior and employees’ historical post-vesting employment termination behavior; (iii) risk-free interest rates based on treasury rates that correspond to the expected lives of the options; and (iv) dividend yield based on the expected yield on underlying Meridian common stock.


Year ended September 30,	2013	2012	2011
Risk-free interest rates	0.88%	1.24%	1.91%
Dividend yield	4.1%	3.42%	3.74%
Life of option	6.23 yrs.	6.22 yrs.	5.93 yrs.
Share price volatility	36%	39%	34%
Forfeitures (by employee group)	0%-10%	0%-10%	0%-10%

A summary of the status of our stock option plans at September 30, 2013 and changes during the year is presented in the table and narrative below:


	Options			Wtd Avg Exercise Price		Wtd Avg Remaining Life (Yrs)		Aggregate Intrinsic Value
Outstanding beginning of period		2,026		$	16.93
Grants		66			21.08
Exercises		(225	)		10.03
Forfeitures		(8	)		20.68
Cancellations		(351	)		17.74

Outstanding end of period		1,508		$	17.93		6.11	$	9,486

Exercisable end of period		721		$	17.90		3.87	$	5,017

A summary of the status of our nonvested options as of September 30, 2013, and changes during the year ended September 30, 2013, is presented below:


	Options			Weighted- Average Grant Date Fair Value
Nonvested beginning of period		1,162		$	4.95
Granted		66			4.19
Vested		(88	)		8.07
Forfeitures		(8	)		5.11
Cancelled		(351	)		4.66

Nonvested end of period		781		$	4.66

The weighted average grant-date fair value of options granted was $4.19, $4.68 and $4.97 for fiscal 2013, 2012 and 2011, respectively. The total intrinsic value of options exercised was $2,483, $452 and $8,038, for fiscal 2013, 2012 and 2011, respectively. The total grant-date fair value of options that vested during fiscal 2013, 2012 and 2011 was $712, $361 and $1,594, respectively.

Cash received from options exercised was $2,258, $431 and $1,721 for fiscal 2013, 2012 and 2011, respectively. Tax benefits realized and recorded to additional paid-in capital from option exercises totaled $306, $15 and $1,256 for fiscal 2013, 2012 and 2011, respectively.