13. EMPLOYEE STOCK PLANS

The table below summarizes the net share-based compensation expense recognized for employee stock awards and for the option component of the employee stock purchase plan shares:

	Three Months Ended						Nine Months Ended
	June 27,			June 28,			June 27,			June 28,
(In thousands)	2014			2013			2014			2013
Cost of revenues - Product	$	950		$	1,058		$	2,374		$	3,443
Cost of revenues - Service		1,330			1,069			3,392			2,530
Research and development		1,771			1,515			4,392			4,741
Selling, general and administrative		7,363			6,882			19,896			23,201
Total share-based compensation expense		11,414			10,524			30,054			33,915
Tax effects		(3,564	)		(3,181	)		(9,301	)		(10,359	)
Net share-based compensation expense	$	7,850		$	7,343		$	20,753		$	23,556

During the nine months ended June 27, 2014, the Company granted performance units to certain employees under the Third Amended 2005 Plan. The number of shares of VMS common stock ultimately issued under the performance units at the end of a three-year performance period will depend on the Company’s business performance during the three-year period against specified performance targets set by the Compensation and Management Development Committee of the Board of Directors at the beginning of the period. Subject to certain exceptions, any unvested performance unit awards are forfeited at the time of termination.

The fair value of options granted was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:

	Three Months Ended					Nine Months Ended
	June 27,		June 28,			June 27,			June 28,
	2014		2013			2014			2013
Employee Stock Option Plans
Expected term (in years)	-			4.77			4.13		4.76
Risk-free interest rate	-			0.7	%		1.2	%		0.6	%
Expected volatility	-			29.6	%		24.6	%		32.2	%
Expected dividend	-			0.0	%		0.0	%		0.0	%
Weighted average fair value at grant date	$	-	$	18.21		$	18.23		$	19.73

The option component of employee stock purchase plan shares was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:

	Three Months Ended						Nine Months Ended
	June 27,			June 28,			June 27,			June 28,
	2014			2013			2014			2013
Employee Stock Purchase Plan
Expected term (in years)		0.50			0.50			0.50			0.50
Risk-free interest rate		0.1	%		0.1	%		0.1	%		0.1	%
Expected volatility		11.1	%		13.6	%		12.8	%		16.5	%
Expected dividend		0.0	%		0.0	%		0.0	%		0.0	%
Weighted average fair value at grant date	$	14.42		$	12.21		$	14.20		$	12.95

A summary of share-based awards available for grant is as follows:

	Shares
	Available
(In thousands)	for Grant
Balance at September 27, 2013		9,925
Granted		(1,923	)
Cancelled or expired		151
Balance at June 27, 2014		8,153

Awards other than stock options set forth in the table were counted against the shares available for grant limit of the Third Amended 2005 Plan as 2.5 shares for every one share awarded before February 9, 2012 and were counted against the shares available for grant limit as 2.6 shares for every one awarded on or after February 9, 2012. In addition, the shares available for grant limit was further adjusted to reflect a maximum payout of 1.5 shares that could be issued for each performance unit granted.

Activity under the Company’s employee stock plans is presented below:

	Options Outstanding
						Weighted-
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
(In thousands, except per share amounts)	Shares			Price		Term (in years)		Value (1)
Balance at September 27, 2013		4,485		$	53.02
Granted		619			83.49
Cancelled or expired		(36	)		71.03
Exercised		(1,421	)		48.39
Balance at June 27, 2014		3,647		$	59.84		3.4	$	87,565

Exercisable at June 27, 2014		2,688		$	53.64		2.4	$	81,202

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value of options, which is computed based on the difference between the exercise price and VMS’s closing common stock price of $83.85 as of June 27, 2014, the last trading date of the third quarter of fiscal year 2014, and which would have been received by the option holders had all option holders exercised and sold their options as of that date.

As of June 27, 2014, there was $13.4 million of total unrecognized compensation expense related to outstanding stock options. This unrecognized compensation expense is expected to be recognized over a weighted average period of 1.8 years.

The activity for restricted stock, restricted stock units, deferred stock units and performance units is summarized as follows:

				Weighted Average
				Grant-Date Fair
(In thousands, except per share amounts)	Shares			Value
Balance at September 27, 2013		1,035		$	64.36
Granted		467			82.50
Vested		(331	)		63.40
Cancelled or expired		(38	)		70.40
Balance at June 27, 2014		1,133		$	72.10

Share-based compensation expense for restricted common stock, restricted stock units and deferred stock units is measured at the stock’s fair value on the date of grant and is amortized over each award’s respective service period. The Company values performance units using the Monte Carlo simulation model on the date of grant with assumptions that includes the historical volatilities of shares of VMS common stock, as well as the shares of common stock of peer companies. In addition, the Company estimates the probability that certain performance conditions that affect the vesting of performance units will be achieved, and recognizes expense only for those awards expected to vest.

As of June 27, 2014, unrecognized compensation expense totaling $45.9 million was related to awards of restricted stock, restricted stock units, deferred stock units and performance units. This unrecognized compensation expense is expected to be recognized over a weighted average period of 1.9 years.