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Stockholders' Equity and Stock Compensation Plans

12 Months Ended

Oct. 02, 2011

Stockholders' Equity and Stock Compensation Plans

Stockholders' Equity and Stock Compensation Plans

10. Stockholders' Equity and Stock Compensation Plans

At October 2, 2011, we had the following stock-based compensation plans:

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1992 Incentive Stock Plan.  Key employees were granted options to purchase an aggregate of 7,202,147 shares of our common stock. The 1992 Incentive Stock Plan was terminated in December 2002, except as to the outstanding options. These options became exercisable one year from the date of grant, became fully vested no later than five years, and expire no later than ten years from the date of grant.

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1992 Stock Option Plan for Non-Employee Directors.  Non-employee directors were granted options to purchase an aggregate of 178,808 shares of our common stock at prices not less than 100% of market value on the date of grant. This plan was terminated in December 2002, except as to the outstanding options. Exercise prices of all options granted were at market value on the date of grant. These options are fully vested and expire no later than ten years from the date of grant.

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2003 Outside Director Stock Option Plan.  Non-employee directors may be granted options to purchase an aggregate of up to 400,000 shares of our common stock at prices not less than 100% of the market value on the date of grant. Exercise prices of all options granted were at the market value on the date of grant. These options vest and become exercisable on the first anniversary of the date of grant if the director has not ceased to be a director prior to such date, and expire no later than ten years from the grant date.

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2005 Equity Incentive Plan.  Key employees may be granted options to purchase an aggregate of 6,086,216 shares of our common stock. This plan was amended, restated and renamed the 2002 Stock Option Plan. Options granted before March 6, 2006 vest at 25% on the first anniversary of the grant date, and the balance vests monthly thereafter, such that these options become fully vested no later than four years from the date of grant. These options expire no later than ten years from the date of grant. Options granted on and after March 6, 2006 vest at 25% on each anniversary of the grant date. These options expire no later than eight years from the grant date.

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Restricted Stock Program.  In accordance with our Executive Compensation Policy, our Compensation Committee may grant long-term incentive awards in the form of restricted stock issued under the 2005 Equity Incentive Plan. Restricted stock grants generally vest over a minimum three-year period, and may be either performance-based, determined by EPS growth, or service-based. Restricted stock is typically granted to employees who are executive officers. Under our current policy for non-employee director compensation, restricted stock is granted to non-employee directors.

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Employee Stock Purchase Plan ("ESPP").  Purchase rights to purchase common stock are granted to our eligible full and part-time employees, and shares of common stock are issued upon exercise of the purchase rights. An aggregate of 2,373,290 shares may be issued pursuant to such exercise. The maximum amount that an employee can contribute during a purchase right period is $5,000. The exercise price of a purchase right is the lesser of 100% of the fair market value of a share of common stock on the first day of the purchase right period or 85% of the fair market value on the last day of the purchase right period (calendar year).

The stock-based compensation and related income tax benefits were as follows:

		Fiscal Year Ended

		October 2, 2011			October 3, 2010			September 27, 2009
		(in thousands)

Total stock-based compensation		$	10,582		$	10,178		$	9,392
Income tax benefit related to stock-based compensation			(3,804	)		(3,590	)		(3,796	)

	Stock-based compensation, net of tax benefit	$	6,778		$	6,588		$	5,596

Stock option activity for the fiscal year ended October 2, 2011 was as follows:

				Weighted- Average Exercise Price per Share


Outstanding on October 3, 2010		5,240		$	20.35
	Granted	1,096			23.39
	Exercised	(444	)		18.81
	Cancelled	(312	)		22.89

Outstanding at October 2, 2011		5,580			20.93	4.6	4,605

Vested or expected to vest at October 2, 2011		5,364			20.89	4.6	4,496

Exercisable on October 2, 2011		3,267			19.55	6.2	3,866

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on the last trading day of fiscal 2011 and the exercise price, times the number of shares) that would have been received by the in-the-money option holders if they had exercised their options on October 2, 2011. This amount will change based on the fair market value of our stock. At October 2, 2011, we expect to recognize $14.5 million of unrecognized compensation cost related to stock option grants over a weighted-average period of 2.2 years. At October 2, 2011, there were approximately 2.9 million options available for future awards.

The weighted-average fair value of stock options granted during fiscal 2011, 2010 and 2009 was $9.08, $10.09 and $7.60, respectively. The aggregate intrinsic value of options exercised during fiscal 2011, 2010 and 2009 was $2.3 million, $2.2 million and $13.2 million, respectively.

The fair value of our stock options was estimated on the date of grant using the Black-Scholes option pricing model. The following assumptions were used in the calculation:

	Fiscal Year Ended

	October 2, 2011	October 3, 2010	September 27, 2009

Dividend yield	–	–	–
Expected stock price volatility	41.8 - 42.7%	42.6 - 43.4%	48.8%
Risk-free rate of return, annual	1.3 - 2.1%	2.0% - 2.5%	1.6% - 2.6%
Expected life (in years)	4.8 - 5.5	4.4 - 5.6	4.4 - 5.6

For purposes of the Black-Scholes model, forfeitures were estimated based on historical experience. For the fiscal years ended October 2, 2011, October 3, 2010, and September 27, 2009, we based our expected stock price volatility on historical volatility behavior and current implied volatility behavior. Our risk-free rate of return was based on constant maturity rates provided by the U.S. Treasury. The expected life was based on historical experience.

Net cash proceeds from the exercise of stock options were $8.4 million, $3.4 million and $20.3 million for fiscal 2011, 2010 and 2009, respectively. Our policy is to issue shares from our authorized shares upon the exercise of stock options. The actual income tax benefit realized from exercises of nonqualified stock options and disqualifying dispositions of qualified options for fiscal 2011, 2010 and 2009 was $1.4 million, $2.0 million and $5.7 million, respectively.

ESPP

The following table summarizes shares purchased, weighted-average purchase price, cash received and the aggregate intrinsic value for shares purchased under the ESPP:

	Fiscal Year Ended

	October 2, 2011		October 3, 2010		September 27, 2009
	(in thousands, except for purchase price)

Shares purchased		246		208		163
Weighted-average purchase price	$	21.30	$	22.87	$	20.53
Cash received from exercise of purchase rights	$	5,249	$	4,733	$	3,343
Aggregate intrinsic value	$	926	$	892	$	590

The grant date fair value of each award granted under the ESPP was estimated using the Black-Scholes option pricing model with the following assumptions:

	Fiscal Year Ended

	October 2, 2011			October 3, 2010			September 27, 2009

Dividend yield		–			–			–
Expected stock price volatility		38.0	%		38.5	%		68.2	%
Risk-free rate of return, annual		0.3	%		0.5	%		0.4	%
Expected life (in years)		1			1			1

For fiscal 2011, 2010 and 2009, we based our expected stock price volatility on historical volatility behavior and current implied volatility behavior. The risk-free rate of return was based on constant maturity rates provided by the U.S. Treasury. The expected life was based on the ESPP terms and conditions.

Included in stock-based compensation expense for fiscal 2011, 2010 and 2009 was a charge of $1.0 million, $1.3 million and $1.0 million, respectively, related to the ESPP. The unrecognized stock-based compensation costs for awards granted under the ESPP at October 2, 2011, and October 3, 2010 were $0.3 million and $0.3 million, respectively. At October 2, 2011, ESPP participants had accumulated $2.8 million to purchase our common stock.

Restricted Stock Program

In fiscal 2011, 2010 and 2009, we awarded 94,606 shares, 88,258 shares and 72,200 shares, respectively, of restricted stock to certain of our executive officers and directors. Of these 255,064 awards, 20,000 shares were time-based, and are dependent on the officer's continued employment with us, but otherwise vest over a four-year period. The remaining 235,064 shares were performance-based, where the percentage of awarded shares that ultimately vests depends on fiscal year earnings per share growth rates meeting certain targets for the three fiscal years that end after the award date. In fiscal 2011, 2010 and 2009, an additional 8,356 shares, 11,557 shares and 7,408 shares, respectively, of restricted stock were awarded for performance-based adjustments resulting from exceeding those targets. Restricted stock forfeitures result from employment terminations prior to vesting, and when the performance-based award growth rate targets are below the lowest target rate. Forfeited restricted stock shares return to the pool of authorized shares available for award. As of October 2, 2011, there were 528,403 shares available for future awards of restricted stock. At October 2, 2011, and October 3, 2010, there were 174,175 shares and 166,325 shares, respectively, of restricted stock outstanding.

Activity in the restricted stock program for the fiscal year ended October 2, 2010, was as follows:

		Number of Shares (in thousands)	Weighted- Average Grant Date Fair Value


Nonvested balance at October 3, 2010		166	$	22.70
	Granted	103		23.32
	Vested	(56)		20.88
	Forfeited	(39)		24.93

Nonvested balance at October 2, 2011		174	$	23.14

Vested or expected to vest at October 2, 2011		174	$	23.14

The fair value of the total compensation cost of each restricted stock award was determined at the date of grant using the market price of the underlying common stock as of the date of grant. For performance-based awards, our expected performance is reviewed to estimate the percentage of shares that will vest. The total compensation cost of the awards is then amortized over their applicable vesting period on a straight-line basis. The stock-based compensation expense related to the restricted stock program for fiscal years 2011, 2010 and 2009 was $1.7 million, $1.2 million and $2.0 million, respectively, and was included in the total stock-based compensation expense. As of October 2, 2011, there was $2.6 million of unrecognized compensation costs related to the restricted stock program that will be substantially recognized by the end of fiscal 2014.