Employee Compensation Plans

12 Months Ended

Sep. 24, 2011

Employee Compensation Plans

Employee Compensation Plans

15. Employee Compensation Plans

Stock Option Plans

On March 16, 2006, stockholders of the Company approved the Company's 2006 Incentive Plan (the "2006 Plan"). The 2006 Plan was amended on March 13, 2008 and on March 11, 2010 to increase the total shares of common stock authorized for issuance to 13,200,000. At September 24, 2011 and September 25, 2010, options for 5,750,859 shares and 6,137,338 shares of common stock were available for grant under the plan, respectively.

On September 25, 2001, the Company registered on Form S-8 the 2000 Stock Option Plan (the "2000 Plan"). The plan expired in October 2010. Grants under the 2000 Plan generally expire ten years after the grant date, or earlier if employment terminates. At September 24, 2011 there were no options for shares of common stock available for grant under this plan. At September 25, 2010, options for 4,980 shares of common stock were available for grant under the plan.

In connection with the acquisition of Keurig, the Company assumed the existing outstanding unvested option awards of the Keurig, Incorporated Fifth Amended and Restated 1995 Stock Option Plan (the "1995 Plan") and the Keurig, Incorporated 2005 Stock Option Plan (the "2005 Plan"). No shares under either the 1995 Plan or the 2005 Plan were eligible for post-acquisition awards. At September 24, 2011, and September 25, 2010, 6,664 and 28,194 options out of the 1,386,909 options for shares of common stock granted were outstanding under the 1995 Plan, respectively. At September 24, 2011, and September 25, 2010, 136,119 options and 282,647 options out of the 1,490,577 options granted for shares of common stock were outstanding under the 2005 Plan, respectively. All awards assumed in the acquisition were initially granted with a four-year vesting schedule and continue to vest in accordance with their existing terms.

On May 3, 2007, Mr. Lawrence Blanford commenced his employment as the President and Chief Executive Officer of the Company. Pursuant to the terms of the employment, the Company made an inducement grant on May 4, 2007, to Mr. Blanford of a non-qualified option to purchase 945,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 20% installments on each of the first five anniversaries of the date of the grant, provided that Mr. Blanford remains employed with the Company on each vesting date.

On November 3, 2008, Ms. Michelle Stacy commenced her employment as the President of Keurig, Incorporated. Pursuant to the terms of the employment, the Company made an inducement grant on November 3, 2008, to Ms. Stacy of a non-qualified option to purchase 157,500 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Ms. Stacy remains employed with the Company on each vesting date.

On February 9, 2009, Mr. Howard Malovany commenced his employment as the Vice President, Corporate General Counsel and Secretary of the Company. Pursuant to the terms of the employment, the Company made an inducement grant on February 9, 2009, to Mr. Malovany of a non-qualified option to purchase 157,500 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Mr. Malovany remains employed with the Company on each vesting date.

On December 17, 2010, Mr. Gérard Geoffrion commenced his employment as the President of CBU. Pursuant to the terms of the employment, the Company made an inducement grant on December 17, 2010, to Mr. Geoffrion of a non-qualified option to purchase 35,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Mr. Geoffrion remains employed with the Company on each vesting date.

On December 22, 2010, the Company made an inducement grant to Mr. Sylvain Toutant, Chief Operating Officer of CBU, of a non-qualified option to purchase 20,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Mr. Toutant remains employed with the Company on each vesting date.

On February 17, 2011, Ms. Linda Longo-Kazanova commenced her employment as the Vice President, Chief Human Resources Officer. Pursuant to the terms of the employment, the Company made an inducement grant on February 17, 2011, to Ms. Longo-Kazanova of a non-qualified option to purchase 30,000 shares of the Company's common stock, with an exercise price equal to fair market value on the date of the grant. The shares subject to the option will vest in 25% installments on each of the first four anniversaries of the date of the grant, provided that Ms. Longo-Kazanova remains employed with the Company on each vesting date.

Under the 2000 Plan, the option price for each incentive stock option shall not be less than the fair market value per share of common stock on the date of grant, with certain provisions which increase the option price 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. The 2006 Plan requires 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 price 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. Options under the 2000 Plan and the 2006 Plan become exercisable over periods determined by the Board of Directors, generally in the range of four to five years.

Option activity is summarized as follows:

	Number of Shares			Weighted Average Exercise Price (per share)
Outstanding at September 25, 2010		10,428,285		$	6.06
Granted		483,982		$	56.73
Exercised		(2,839,426	)	$	4.01
Forfeited		(15,674	)	$	25.90
Outstanding at September 24, 2011		8,057,167		$	9.81
Exercisable at September 24, 2011		5,692,407		$	4.88

The following table summarizes information about stock options that have vested and are expected to vest at September 24, 2011:

Number of options outstanding	Weighted average remaining contractual life (in years)		Weighted average exercise price		Intrinsic value at September 24, 2011 (in thousands)
8,030,430		5.88	$	9.69	$	757,412

The following table summarizes information about stock options exercisable at September 24, 2011:

Number of options exercisable	Weighted average remaining contractual life (in years)		Weighted average exercise price		Intrinsic value at September 24, 2011 (in thousands)
5,692,407		5.15	$	4.88	$	563,707

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.

Income before income taxes was reduced by $10.4 million, $7.9 million and $6.7 million (gross of tax), respectively, due to the recognition of stock compensation expense for the years ended September 24, 2011, September 25, 2010, and September 26, 2009, respectively. Net of tax, stock compensation expense was $7.2 million, $5.4 million and $4.7 million for the years ended September 24, 2011, September 25, 2010, and September 26, 2009, respectively.

Total unrecognized share-based compensation costs related to unvested stock options expected to vest were approximately $21.4 million as of September 24, 2011, which related to approximately 2,338,000 shares. This unrecognized cost is expected to be recognized over a weighted average period of approximately 2 years at September 24, 2011. The intrinsic values of options exercised during fiscal 2011 and fiscal 2010 were approximately $221.8 million and $49.7 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 2011, 2010 and 2009:

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Average expected life		6 years			6 years			6 years
Average volatility		52	%		53	%		52	%
Dividend yield		—			—			—
Risk-free interest rate		2	%		3	%		2	%
Weighted average fair value	$	29.34		$	15.79		$	4.57

Employee Stock Purchase Plan

On October 5, 1998, the Company registered on Form S-8 the 1998 Employee Stock Purchase Plan. On March 13, 2008, the plan was amended and renamed the Amended and Restated Employee Stock Purchase Plan ("ESPP"). Under this plan, 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 are two six-month withholding periods in each fiscal year. At September 24, 2011, and September 25, 2010, options for 1,861,699 and 2,010,617 shares of common stock were available for purchase under the plan, respectively.

The grant-date fair value of employees' purchase rights granted during fiscal 2011, 2010 and 2009 under the Company's ESPP is estimated using the Black-Scholes option-pricing model with the following assumptions:

	Fiscal 2011			Fiscal 2010			Fiscal 2009
Average expected life		6 months			6 months			6 months
Average volatility		57	%		49	%		66	%
Dividend yield		—			—			—
Risk-free interest rate		0	%		0	%		1	%
Weighted average fair value	$	15.97		$	7.90		$	3.16