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 for 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, directors, and other designated employees. As of September 28, 2014, 2,930,660 shares of common stock were available for future issuance under this plan.

There is one other plan under which we can no longer issue awards, although awards outstanding under this plan may still vest and be exercised: 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 and dividend 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 28, 2014, 143,122 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 28, 2014, 107,646 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):



	2014		2013		2012
Stock options	$	2,660	$	5,075	$	3,549
Performance share awards	3,923		2,311		897
Nonvested stock awards	310		430		408
Nonvested stock units	3,247		3,356		1,874
Deferred compensation for directors	218		220		155
Total share-based compensation expense	$	10,358	$	11,392	$	6,883

Stock options — Prior to fiscal 2007, options granted had contractual terms of 10 or 11 years and employee options generally vested over a 4-year period. Beginning fiscal 2007, option grants have contractual terms of 7 years and employee options vest over a 3-year period. Options may vest sooner for employees meeting certain age and years of service thresholds. Prior to 2009, we granted options to non-management directors that vested 6 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 2014:



	Shares		Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at September 29, 2013	2,404,856		$22.59
Granted	215,248		$47.29
Exercised	(1,397,603	)	$22.70
Forfeited	(30,059	)	$30.88
Expired	(2,872	)	$12.82
Options outstanding at September 28, 2014	1,189,570		$26.74	4.26	$	46,379
Options exercisable at September 28, 2014	775,174		$21.95	3.62	$	33,935
Options exercisable and expected to vest at September 28, 2014	1,189,570		$26.74	4.26	$	46,379

The aggregate intrinsic value in the table above is the amount by which the current market price of our stock on September 28, 2014 exceeds the exercise price.

We use a valuation model to determine the fair value of options granted which requires 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:



	2014			2013			2012
Risk-free interest rate	2.05		%	1.09		%	1.98		%
Expected dividends yield	—		%	—		%	—		%
Expected stock price volatility	39.18		%	42.24		%	39.84		%
Expected life of options (in years)	6.50			6.50			6.64
Weighted-average grant date fair value	$	20.04		$	11.84		$	7.37

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 at the grant date. We declared our first dividend on May 9, 2014. 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 28, 2014, there was approximately $3.2 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 1.4 years. The total intrinsic value of stock options exercised was $42.4 million, $25.9 million and $6.0 million in 2014, 2013 and 2012, 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 corporate performance goals and continued employment during the vesting period. Performance share awards issued to executives vest at the end of a 3-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 3-year period. Prior to 2012, we issued performance share awards to other members of management that vest at the end of a 3-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 2014:



	Shares		Weighted- Average Grant Date Fair Value
Performance share awards outstanding at September 29, 2013	325,225		$21.73
Granted	55,668		$47.29
Issued	(50,945	)	$21.31
Forfeited	(22,839	)	$24.38
Performance adjustments	23,094		$18.67
Performance share awards outstanding at September 28, 2014	330,203		$25.69
Vested and subject to release at September 28, 2014	186,184		$19.33

As of September 28, 2014, there was approximately $5.2 million of total unrecognized compensation cost related to performance-vested stock awards which is expected to be recognized over a weighted-average period of 1.6 years. The weighted-average grant date fair value of awards granted was $47.29, $27.49 and $19.62 in 2014, 2013 and 2012, respectively. The total fair value of awards that vested during 2014, 2013 and 2012 was $3.6 million, $1.0 million and $0.5 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 RSA awards and have replaced them with grants of nonvested restricted stock units. The 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.

The following is a summary of RSA activity for fiscal 2014:



	Shares		Weighted- Average Grant Date Fair Value
Nonvested stock awards outstanding at September 29, 2013	315,815		$14.87
Released	(220,000	)	$12.39
Nonvested stock awards outstanding at September 28, 2014	95,815		$20.56
Vested	38,133		$19.79

As of September 28, 2014, there was approximately $0.4 million of total unrecognized compensation cost related to RSAs, which is expected to be recognized over a weighted-average period of 2.7 years. In 2014, 2013 and 2012, the total fair value of RSAs that vested in each year was $0.8 million, $1.2 million and $0.3 million, respectively.

Nonvested stock units — Nonvested restricted stock units (“RSUs”) are generally issued to executives, non-management directors and certain other members of management and employees. 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 28, 2014, 60,272 such RSUs were outstanding.

Beginning fiscal 2011, we replaced the ownership share grants with time-vested RSUs for certain Vice Presidents and Officers that vest ratably over 5 years and have a 50% or 100% holding requirement on settled shares, which must be held until termination. As of September 28, 2014, 76,999 such RSUs were outstanding. RSUs issued to non-management directors vest 12 months from the date of grant, or upon termination of board service if the directors elected to defer receipt and totaled 38,699 units as of September 28, 2014. RSUs issued to certain other employees either cliff vest or vest ratably over 3 years and totaled 154,901 units as of September 28, 2014. 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 2014:



	Shares		Weighted- Average Grant Date Fair Value
Nonvested stock units outstanding at September 29, 2013	383,621		$24.17
Granted	125,728		$49.79
Released	(148,997	)	$23.34
Canceled	(29,481	)	$30.39
Nonvested stock units outstanding at September 28, 2014	330,871		$33.73

As of September 28, 2014, there was approximately $5.9 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.0 years. The weighted-average grant date fair value of awards granted was $49.79, $28.95 and $22.26 in 2014, 2013 and 2012, respectively. In 2014, 2013 and 2012, the total fair value of RSUs that vested and were released was $3.5 million, $0.9 million and $1.8 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 2014, 2013 and 2012, 10,616, 44,714 and 44,713 shares of common stock were issued in connection with director retirements having a fair value of $0.6 million, $1.4 million and $1.0 million, respectively.

The following is a summary of the stock equivalent activity for fiscal 2014:



	Stock Equivalents		Weighted- Average Grant Date Fair Value
Stock equivalents outstanding at September 29, 2013	81,712		$20.34
Deferred directors’ compensation	3,861		$56.33
Dividend equivalents	509		$59.01
Stock distribution	(10,616	)	$13.24
Stock equivalents outstanding at September 28, 2014	75,466		$23.44

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



	2014		2013		2012
Common stock issued	4,055		7,144		11,087
Fair value of common stock issued	$	49.25	$	29.71	$	21.65