SHARE-BASED EMPLOYEE COMPENSATION

Stock incentive plans — We offer share-based compensation plans to attract, retain and motivate key officers, employees and non-employee directors to work toward the financial success of the Company.

Our stock incentive plans are administered by the Compensation Committee of the Board of Directors and have been approved by the stockholders of the Company. The terms and conditions of our share-based awards are determined by the Compensation Committee on each award date and may include provisions for the exercise price, expirations, vesting, restriction on sales and forfeitures, as applicable. We issue new shares to satisfy stock issuances under our stock incentive plans.

Our Amended and Restated 2004 Stock Incentive Plan authorizes the issuance of up to 11,600,000 common shares in connection with the granting of stock options, stock appreciation rights, restricted stock purchase rights, restricted stock bonuses, restricted stock units or performance units to key employees and directors. As of September 30, 2012, 3,774,637 shares of common stock were available for future issuance under this plan.

There are three other plans under which we can no longer issue awards, although awards outstanding under these plans may still vest and be exercised: the 1993 Stock Option Plan, the 2002 Stock Incentive Plan and the Non-Employee Director Stock Option Plan.

We also maintain a deferred compensation plan for non-management directors under which those who are eligible to receive fees or retainers may choose to defer receipt of their compensation. The deferred amounts are converted to stock equivalents. The plan requires settlement in shares of our common stock based on the number of stock equivalents at the time of a participant’s separation from the Board of Directors. This plan provides for the issuance of up to 350,000 shares of common stock in connection with the crediting of stock equivalents. As of September 30, 2012, 198,452 shares of common stock were available for future issuance under this plan.

We maintain an employee stock purchase plan (“ESPP”) for all eligible employees to purchase shares of common stock at 95% of the fair market value on the date of purchase. Employees may authorize us to withhold up to 15% of their base compensation during any offering period, subject to certain limitations. A maximum of 200,000 shares of common stock may be issued under the plan. As of September 30, 2012, 118,845 shares of common stock were available for future issuance under this plan.

Compensation expense — The components of share-based compensation expense recognized in each year are as follows (in thousands):



	2012		2011		2010
Stock options	$	3,549	$	5,118	$	7,234
Performance-vested stock awards	897		443		1,145
Nonvested stock awards	408		602		923
Nonvested stock units	1,874		1,727		1,024
Deferred compensation for directors	155		172		279
Total share-based compensation expense	$	6,883	$	8,062	$	10,605

Stock options — Prior to fiscal 2007, options granted had contractual terms of 10 or 11 years and employee options generally vested over a four-year period. Beginning fiscal 2007, option grants have contractual terms of 7 years and employee options vest over a three-year period. Options may vest sooner for employees meeting certain age and years of service thresholds. Options granted to non-management directors vest six months from the date of grant. All option grants provide for an option exercise price equal to the closing market value of the common stock on the date of grant.

The following is a summary of stock option activity for fiscal 2012:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at October 2, 2011	4,835,651		$	22.40
Granted	485,057		18.69
Exercised	(645,411	)	15.78
Forfeited	(17,834	)	22.47
Expired	(8,876	)	13.00
Options outstanding at September 30, 2012	4,648,587		$	22.95	3.45	$	26,207
Options exercisable at September 30, 2012	3,709,435		$	23.90	2.93	$	17,845
Options exercisable and expected to vest at September 30, 2012	4,621,913		$	22.97	3.43	$	25,966

The aggregate intrinsic value in the table above is the amount by which the current market price of our stock on September 30, 2012 exceeds the exercise price.

We use a binomial-based model to determine the fair value of options granted. Valuation models require the input of highly subjective assumptions, including the expected volatility of the stock price. The following table presents the weighted-average assumptions used for stock option grants in each year, along with the related weighted-average grant date fair value:



	2012			2011			2010
Risk-free interest rate	1.98		%	1.19		%	1.97		%
Expected dividends yield	—		%	—		%	—		%
Expected stock price volatility	39.84		%	43.17		%	38.65		%
Expected life of options (in years)	6.64			6.05			4.46
Weighted-average grant date fair value	$	7.37		$	8.25		$	6.54

The risk-free interest rate was determined by a yield curve of risk-free rates based on published U.S. Treasury spot rates in effect at the time of grant and has a term equal to the expected life of the related options. The dividend yield assumption is based on the Company’s history and expectations of dividend payouts. The expected stock price volatility in all years represents an average of the implied volatility and the Company’s historical volatility. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends.

As of September 30, 2012, there was approximately $2.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options grants which is expected to be recognized over a weighted-average period of 0.87 years. The total intrinsic value of stock options exercised was $6.0 million, $4.2 million and $4.0 million in 2012, 2011 and 2010, respectively.

Performance share awards — Performance share awards, granted in the form of stock units, represent a right to receive a certain number of shares of common stock based on the achievement of specified performance goals and continued employment during the vesting period. Performance share awards issued to executives vest at the end of a three-year period and vested amounts may range from 0% to as high as 150% of targeted amounts depending on the achievement of performance measures at the end of a three-year period. Performance share awards issued to other members of management vest at the end of a three-year period with vested amounts ranging from 0% to 100% depending on the achievement of performance measures at the end of the first year of the three year period. The expected cost of the shares is based on the fair value of our stock on the date of grant and is reflected over the vesting period with a reduction for estimated forfeitures. These awards may be settled in cash or shares of common stock at the election of the Company on the date of grant. It is our intent to settle these awards with shares of common stock.

The following is a summary of performance share award activity for fiscal 2012:



	Shares		Weighted- Average Grant Date Fair Value
Performance share awards outstanding at October 2, 2011	380,187		$	19.98
Granted	234,258		19.62
Issued	(48,105	)	15.93
Forfeited	(45,465	)	20.52
Canceled	(146,816	)	21.05
Performance share awards outstanding at September 30, 2012	374,059		$	19.79
Vested and subject to release at September 30, 2012	37,272		$	17.86

As of September 30, 2012, there was approximately $3.6 million of total unrecognized compensation cost related to performance-vested stock awards which is expected to be recognized over a weighted-average period of 1.8 years. The weighted-average grant date fair value of awards granted was $19.62, $21.74 and $19.19 in 2012, 2011 and 2010, respectively. The total fair value of awards that vested during 2012, 2011 and 2010 was $0.5 million, $0.6 million and $0.6 million, respectively.

Nonvested stock awards — We previously issued nonvested stock awards (“RSAs”) to certain executives under our share ownership guidelines. Effective fiscal 2009, we no longer issue these awards which have been replaced by grants of nonvested stock units. Our RSAs vest, subject to the discretion of our Board of Directors in certain circumstances, upon retirement or termination based upon years of service. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date.

During fiscal 2012, there was no RSA activity. The following is detail regarding RSAs outstanding at September 30, 2012:



	Shares	Weighted- Average Grant Date Fair Value
Nonvested stock awards outstanding	394,117	$	14.81
Vested	151,878	$	13.61

As of September 30, 2012, there was approximately $1.7 million of total unrecognized compensation cost related to RSAs, which is expected to be recognized over a weighted-average period of 4.2 years. In 2012, 2011 and 2010, the total fair value of RSAs that vested in each year was $0.3 million, $0.2 million and $0.2 million, respectively.

Nonvested stock units — In February 2009, the Board of Directors approved the issuance of a new type of stock award, nonvested stock units (“RSUs”). RSUs are generally issued to executives, non-management directors and certain other members of management. Prior to fiscal 2011, RSUs were granted to certain Executive and Senior Vice Presidents pursuant to our share ownership guidelines. These awards vest upon retirement or termination based on years of service. As of September 30, 2012, 60,272 such RSUs were outstanding.

Beginning fiscal 2011, we replaced ownership share grants with time-vested RSUs for all Vice Presidents and Officers that vest ratably over five years and have a 50% or 100% holding requirement on settled shares, which must be held until termination. As of September 30, 2012, 131,002 such RSUs were outstanding. RSUs issued to non-management directors vest 12 months from the date of grant or upon termination of board service and totaled 44,842 units as of September 30, 2012. RSUs issued to certain other employees typically cliff vest at three years and totaled 54,500 units as of September 30, 2012. These awards are amortized to compensation expense over the estimated vesting period based upon the fair value of our common stock on the award date.

The following is a summary of RSU activity for fiscal 2012:



	Shares		Weighted- Average Grant Date Fair Value
Nonvested stock units outstanding at October 2, 2011	243,222		$	20.75
Granted	133,485		22.26
Released	(86,091	)	21.41
Nonvested stock units outstanding at September 30, 2012	290,616		$	21.25

As of September 30, 2012, there was approximately $3.6 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 3.3 years. The weighted-average grant date fair value of awards granted was $22.26, $20.02 and $21.05 in 2012, 2011 and 2010, respectively. In 2012, 2011 and 2010, the total fair value of RSUs that vested and were released was $1.8 million, $0.9 million and $0.1 million, respectively.

Non-management directors’ deferred compensation — All awards outstanding under our directors’ deferred compensation plan are accounted for as equity-based awards and deferred amounts are converted into stock equivalents at the then-current market price of our common stock. During fiscal 2012 and 2011, 44,713 and 20,259 shares of common stock were issued in connection with director retirements having a fair value of $1.0 million and $0.5 million, respectively. No deferrals were settled in 2010.

The following is a summary of the stock equivalent activity for fiscal 2012:



	Stock Equivalents		Weighted- Average Grant Date Fair Value
Stock equivalents outstanding at October 2, 2011	157,466		$	14.43
Deferred directors’ compensation	6,590		23.52
Stock distribution	(44,713	)	11.02
Stock equivalents outstanding at September 30, 2012	119,343		$	16.21

Employee stock purchase plan — The following is a summary of shares issued pursuant to our ESPP in each year:



	2012		2011		2010
Common stock issued	11,087		13,140		14,565
Fair value of common stock issued	$	21.65	$	19.99	$	19.32