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 October 2, 2016, 2,322,490 shares of common stock were available for future issuance under this 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 October 2, 2016, 143,122 shares of common stock were available for future issuance under this plan.

We terminated our employee stock purchase plan (“ESPP”) on February 26, 2015. The ESPP plan was available for all eligible employees to purchase shares of common stock at 95% of the fair market value on the date of purchase. Employees could authorize us to withhold up to 15% of their base compensation during any offering period, subject to certain limitations.

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



	2016		2015		2014
Nonvested stock units	$	5,520	$	4,989	$	3,247
Performance share awards	3,068		4,229		3,923
Stock options	2,509		2,782		2,660
Nonvested restricted stock awards	88		156		310
Deferred compensation for directors	270		264		218
Total share-based compensation expense	$	11,455	$	12,420	$	10,358

Nonvested restricted 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 October 2, 2016, 60,272 of 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 four to five years and have a 50% or 100% holding requirement on settled shares, which must be held until termination. As of October 2, 2016, 146,063 of 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 director elects to defer receipt, and totaled 48,456 units outstanding as of October 2, 2016. RSUs issued to certain other employees either cliff vest or vest ratably over three years and totaled 74,114 units outstanding as of October 2, 2016. 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 discounted by the present value of the expected dividend stream over the vesting period.

The following is a summary of RSU activity for fiscal 2016:



	Shares		Weighted- Average Grant Date Fair Value
RSUs outstanding at September 27, 2015	332,973		$	44.34
Granted	140,794		$	72.06
Released	(105,254	)	$	42.65
Forfeited	(39,608	)	$	64.30
RSUs outstanding at October 2, 2016	328,905		$	54.05

As of October 2, 2016, there was approximately $8.7 million of total unrecognized compensation cost related to RSUs, which is expected to be recognized over a weighted-average period of 2.9 years. The weighted-average grant date fair value of awards granted was $72.06, $75.07 and $49.79 in 2016, 2015 and 2014, respectively. In 2016, 2015 and 2014, the total fair value of RSUs that vested and were released was $4.5 million, $2.4 million and $3.5 million, 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 three-year period and vested amounts may range from 0% to a maximum of 150% of targeted amounts depending on the achievement of performance measures at the end of a 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 2016:



	Shares		Weighted- Average Grant Date Fair Value
Performance share awards outstanding at September 27, 2015	162,914		$	59.37
Granted	20,685		$	75.25
Issued	(63,708	)	$	49.44
Forfeited	(11,632	)	$	69.16
Performance adjustments	9,360		$	62.87
Performance share awards outstanding at October 2, 2016	117,619		$	62.13

As of October 2, 2016, there was approximately $1.7 million of total unrecognized compensation cost related to performance share awards which is expected to be recognized over a weighted-average period of 1.5 years. The weighted-average grant date fair value of awards granted was $75.25, $73.53 and $47.29 in 2016, 2015 and 2014, respectively. The total fair value of awards that became fully vested during 2016, 2015 and 2014 was $3.5 million, $3.5 million and $3.6 million, respectively.

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 seven years and employee options vest over a three-year period. Options may vest sooner for employees meeting certain age and years of service thresholds. 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 2016:



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at September 27, 2015	594,348		$	42.72
Granted	99,923		$	75.24
Exercised	(333,406	)	$	31.68
Forfeited	(22,408	)	$	64.96
Options outstanding at October 2, 2016	338,457		$	61.73	5.23	$	11,579
Options exercisable at October 2, 2016	113,880		$	50.25	4.20	$	5,203
Options exercisable and expected to vest at October 2, 2016	338,457		$	61.73	5.23	$	11,579

The aggregate intrinsic value in the table above is the amount by which the current market price of our stock on October 2, 2016 exceeds the weighted average 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 fiscal year, along with the related weighted-average grant date fair value:



	2016			2015			2014
Risk-free interest rate	1.66		%	1.78		%	2.05		%
Expected dividends yield	1.59		%	1.09		%	—		%
Expected stock price volatility	26.68		%	32.09		%	39.18		%
Expected life of options (in years)	4.90			6.00			6.50
Weighted-average grant date fair value	$	16.21		$	22.04		$	20.04

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 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 October 2, 2016, there was approximately $1.8 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 1.3 years. The total intrinsic value of stock options exercised was $18.6 million, $41.8 million and $42.4 million in 2016, 2015 and 2014, 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 RSUs. 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. As of October 2, 2016, RSAs outstanding totaled 95,815 shares with a weighted average grant date fair value of $20.56 per share.

In fiscal 2016, there was no activity related to RSAs. As of October 2, 2016, there was approximately $0.1 million of total unrecognized compensation cost related to RSAs, which is expected to be recognized over a weighted-average period of 1.5 years.

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 2016 and 2015 no common stock was issued in connection with director retirements. In 2014, 10,616 shares of common stock were issued in connection with a director’s retirement with a fair value of $0.6 million.

The following is a summary of the stock equivalent activity for fiscal 2016:



	Stock Equivalents	Weighted- Average Grant Date Fair Value
Stock equivalents outstanding at September 27, 2015	79,158	$	26.64
Deferred directors’ compensation	3,924	$	68.81
Dividend equivalents	1,282	$	80.57
Stock equivalents outstanding at October 2, 2016	84,364	$	29.43

Employee stock purchase plan — The ESPP plan was terminated during fiscal 2015. The following is a summary of shares issued pursuant to our ESPP in fiscal 2015 and 2014:



	2015		2014
Common stock issued	1,371		4,055
Fair value of common stock issued	$	70.78	$	49.25