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
	July 3,			June 27,			July 3,			June 27,
(In thousands)	2015			2014			2015			2014
Cost of revenues - Product	$	1,263		$	950		$	3,578		$	2,374
Cost of revenues - Service	1,066			1,330			3,004			3,392
Research and development	1,717			1,771			5,109			4,392
Selling, general and administrative	7,310			7,363			24,903			19,896
Total share-based compensation expense	$	11,356		$	11,414		$	36,594		$	30,054
Income tax benefit for share-based compensation	$	(3,455	)	$	(3,564	)	$	(11,371	)	$	(9,301	)

During the nine months ended July 3, 2015 and 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 vesting depend on the Company’s business performance during the performance period, against specified performance targets, both of which are set by the Compensation and Management Development Committee of the Board of Directors. The performance units vest at the end of a three-year service period with one three-year performance period for both the Company's and total shareholder return performance grants prior to fiscal year 2015 and a one year Company's performance period and a three year total shareholder return performance period for grants made in fiscal year 2015. 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
	July 3,			June 27,	July 3,			June 27,
	2015			2014	2015			2014
Employee Stock Option Plans
Expected term (in years)	4.13			—	4.15			4.13
Risk-free interest rate	1.3		%	—	1.3		%	1.2		%
Expected volatility	21.6		%	—	22.1		%	24.6		%
Expected dividend	0.0		%	—	0.0		%	0.0		%
Weighted average fair value at grant date	$	17.16		—	$	18.52		$	18.23

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
	July 3,			June 27,			July 3,			June 27,
	2015			2014			2015			2014
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	17.2		%	11.1		%	12.7		%	12.8		%
Expected dividend	0.0		%	0.0		%	0.0		%	0.0		%
Weighted average fair value at grant date	$	17.56		$	14.42		$	15.87		$	14.20

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



(In thousands)	Shares Available for Grant
Balance at September 26, 2014	8,168
Granted	(1,829	)
Cancelled or expired	300
Balance at July 3, 2015	6,639

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 share awarded on or after February 9, 2012.

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



	Options Outstanding
(In thousands, except per share amounts)	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (1)
Balance at September 26, 2014	3,343		$	60.53
Granted	634		92.29
Cancelled or expired	(11	)	87.01
Exercised	(1,358	)	52.88
Balance at July 3, 2015	2,608		$	72.12	4.3	$	39,963

Exercisable at July 3, 2015	1,567		$	61.74	3.0	$	37,892

(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 $85.91 as of July 2, 2015, the last trading date of the third quarter of fiscal year 2015, 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 July 3, 2015, there was $13.6 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 1.7 years.

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



(In thousands, except per share amounts)	Number of Shares		Weighted Average Grant-Date Fair Value
Balance at September 26, 2014	1,126		$	72.08
Granted	407		93.09
Vested	(496	)	67.71
Cancelled or expired	(81	)	67.38
Balance at July 3, 2015	956		$	84.10

As of July 3, 2015, unrecognized compensation expense totaling $44.3 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 1.8 years.