15. Employee Compensation Plans

Equity-Based Incentive Plans

On March 6, 2014, the Company registered on Form S-8 shares of common stock pursuant to the 2014 Omnibus Plan (the "2014 Plan"), which replaced the 2006 Incentive Plan (the "2006 Plan") and increased the total shares of common stock authorized for issuance to 8,000,000 (the "Fungible Pool Limit"). Both plans provide for the issuance of several types of share-based incentive compensation including stock options, stock appreciation rights, restricted stock, restricted stock units and performance stock units. Following shareholder approval of the 2014 Plan, there were no further awards made under the 2006 Plan. Under the 2014 Plan, each share of common stock issued or to be issued in connection with any award that is not a stock option or stock appreciation right shall be counted against the Fungible Pool Limit as 1.704 Fungible Pool Units. Stock options and stock appreciation rights shall be counted against the Fungible Pool Limit as 1.0 Fungible Pool Unit. Both the 2014 Plan and 2006 Plan require the exercise price for all awards requiring exercise to be no less than 100% of fair market value per share of common stock on the date of grant, with certain provisions which increase the option exercise price of an incentive stock option to 110% of the fair market value of the common stock if the grantee owns in excess of 10% of the Company's common stock at the date of grant. As of September 27, 2014, 7.3 million shares of common stock were available for grant for future equity-based compensation awards under the 2014 Plan.

Options under the 2006 Plan and 2014 Plan become exercisable over periods determined by the Board of Directors, generally in the range of three to five years.

As of September 27, 2014, 39,251 options remain outstanding under Keurig, Incorporated 2005 Stock Option Plan assumed in the 2006 acquisition of Keurig, Incorporated as well as stock options related to two previous inducement grants of non-qualified options to two officers of the Company which were not subject to shareholder approval.

Option activity is summarized as follows:

	Number of Shares			Weighted Average Exercise Price (per share)
Outstanding at September 28, 2013		5,022,340		$	18.30
Granted		386,309		$	73.53
Exercised		(1,872,448	)	$	15.02
Forfeited/expired		(99,474	)	$	54.56

Outstanding at September 27, 2014		3,436,727		$	25.24
Exercisable at September 27, 2014		2,541,149		$	13.68

The following table summarizes information about stock options that have vested and are expected to vest at September 27, 2014:

Number of options outstanding		Weighted average remaining contractual life (in years)			Weighted average exercise price			Intrinsic value at September 27, 2014 (in thousands)
3,428,994			4.66		$	25.15		$	361,691

The following table summarizes information about stock options exercisable at September 27, 2014:

Number of options exercisable		Weighted average remaining contractual life (in years)			Weighted average exercise price			Intrinsic value at September 27, 2014 (in thousands)
2,541,149			3.40		$	13.68		$	297,200

Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on the Company's historical employee turnover experience and future expectations.

The Company uses a blend of recent and historical volatility to estimate expected volatility at the measurement date. The expected life of options is estimated based on options vesting periods, contractual lives and an analysis of the Company's historical experience.

The intrinsic values of options exercised during fiscal years 2014, 2013 and 2012 were approximately $167.0 million, $165.5 million and $46.6 million, respectively. The Company's policy is to issue new shares upon exercise of stock options.

The grant-date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model with the following assumptions for grants issued during fiscal years 2014, 2013 and 2012:

	Fiscal 2014			Fiscal 2013			Fiscal 2012
Average expected life		5.5 years			6.0 years			6.0 years
Average volatility		74	%		81	%		69	%
Dividend yield		1.30	%		—	%		—	%
Risk-free interest rate		1.70	%		1.02	%		1.31	%
Weighted average fair value	$	42.38		$	31.23		$	30.10

Restricted Stock Units and Other Awards

The Company awards restricted stock units ("RSUs"), restricted stock awards ("RSAs"), and performance stock units ("PSUs") to eligible employees ("Grantee") which entitle the Grantee to receive shares of the Company's common stock. RSUs and PSUs are awards denominated in units that are settled in shares of the Company's common stock upon vesting. RSAs are awards of common stock that are restricted until the shares vest. In general, RSUs and RSAs vest based on a Grantee's continuing employment. The fair value of RSUs, RSAs and PSUs is based on the closing price of the Company's common stock on the grant date. Compensation expense for RSUs and RSAs is recognized ratably over a Grantee's service period. Compensation expense for PSUs is also recognized over a Grantee's service period, but only if and when the Company concludes that it is probable (more than likely) the performance condition(s) will be achieved. The assessment of probability of achievement is performed each period based on the relevant facts and circumstances at that time, and if the estimated grant-date fair value changes as a result of that assessment, the cumulative effect of the change on current and prior periods is recognized in the period of change. In addition, the Company has awarded deferred cash awards ("DCAs"), to Grantees which entitle a Grantee to receive cash paid over time upon vesting. The vesting of DCAs is conditioned on a Grantee's continuing employment. All awards are reserved for issuance under the 2006 Plan, and beginning with awards granted after March 6, 2014, the 2014 Plan. These awards vest over periods determined by the Board of Directors, generally in the range of three to four years for RSUs, RSAs and DCAs, and three years for PSUs.

The following table summarizes the number and weighted average grant-date fair value of nonvested RSUs (amounts in thousands except grant date fair value and weighted average remaining contractual life):

	Share Units			Weighted Average Grant-Date Fair Value		Weighted Average Remaining Contractual Life (in Years)		Intrinsic Value (in Thousands)
Nonvested, September 28, 2013		221,502		$	42.74		1.71	$	16,586
Granted		259,507		$	119.95
Vested		(56,781	)	$	61.04
Forfeited		(15,055	)	$	82.00

Nonvested, September 27, 2014		409,173		$	86.50		3.26	$	53,450

As of September 27, 2014, total RSUs expected to vest totaled 406,521 shares with an intrinsic value of $53.1 million. The weighted average grant-date fair value of RSUs granted was $119.95 and $45.19 for fiscal 2014 and fiscal 2013, respectively.

The total intrinsic value of RSUs converted to shares of common stock during fiscal 2014 and fiscal 2013 was $6.1 million and $2.2 million, respectively.

The following table summarizes the number and weighted average grant-date fair value of nonvested PSUs based on the target award amounts in the PSU agreements as of September 27, 2014:

	Share Units			Weighted Average Grant-Date Fair Value
Outstanding on September 28, 2013		120,668		$	41.10
Granted		84,232		$	107.12
Forfeited		(9,118	)	$	86.87

Outstanding on September 27, 2014(1)		195,782		$	67.38

(1)	The outstanding PSUs as of September 27, 2014, at the threshold award and maximum award levels were 172,313 and 297,689, respectively.

The weighted average grant-date fair value of PSUs granted was $107.12 in fiscal 2014 compared to $41.28 in 2013. There were no PSUs converted to shares of common stock during fiscal 2014.

In addition, during fiscal 2012 the Company issued a grant for 55,432 RSAs which vested in fiscal 2013 with a total intrinsic value of $2.7 million.

Employee Stock Purchase Plan

On March 6, 2014, the Company registered on Form S-8 shares pursuant to the 2014 Amended and Restated Employee Stock Purchase Plan ("2014 ESPP") which replaced the Amended and Restated Employee Stock Purchase Plan ("2008 ESPP"). Under both plans, eligible employees may purchase shares of the Company's common stock, subject to certain limitations, at the lesser of 85 percent of the beginning or ending withholding period fair market value as defined in the plan. There were two six-month withholding periods in each fiscal year. As of September 27, 2014, rights to acquire 2,045,520 shares of common stock were available for issuance under the 2014 ESPP.

The grant-date fair value of employees' purchase rights granted during fiscal years 2014, 2013 and 2012 under the Company's ESPP is estimated using the Black-Scholes option-pricing model with the following assumptions:

	Fiscal 2014			Fiscal 2013			Fiscal 2012
Average expected life		6 months			6 months			6 months
Average volatility		55	%		86	%		70	%
Dividend yield		1.14	%		—	%		—	%
Risk-free interest rate		0.06	%		0.13	%		0.90	%
Weighted average fair value	$	26.06		$	14.38		$	11.61

Stock-Based Compensation Expense

Stock-based compensation expense recognized in the Consolidated Statements of Operations in fiscal years 2014, 2013, and 2012 (in thousands):

	Fiscal 2014		Fiscal 2013		Fiscal 2012
Options	$	13,029	$	14,151	$	12,595
RSUs/PSUs/RSAs		13,200		7,529		1,861
ESPP		4,444		4,401		3,412

Total stock-based compensation expense recognized in the Consolidated Statements of Operations	$	30,673	$	26,081	$	17,868


Total related tax benefit	$	12,005	$	9,936	$	6,004

As of September 27, 2014, total unrecognized compensation cost related to all nonvested stock-based compensation arrangements was approximately $55.2 million net of estimated forfeitures. This unrecognized cost is expected to be recognized over a weighted-average period of approximately 1.8 years at September 27, 2014.