EMPLOYEE STOCK PLANS

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



	Three Months Ended						Nine Months Ended
(In millions)	June 29, 2018			June 30, 2017			June 29, 2018			June 30, 2017
Cost of revenues - Product	$	0.8		$	0.7		$	2.3		$	2.3
Cost of revenues - Service	1.1			1.0			3.1			3.1
Research and development	1.2			1.3			3.6			3.9
Selling, general and administrative	10.2			6.1			25.5			21.4
Total share-based compensation expense	$	13.3		$	9.1		$	34.5		$	30.7
Income tax benefit for share-based compensation	$	(3.0	)	$	(2.7	)	$	(7.7	)	$	(9.1	)

The Company adopted new accounting guidance in the first quarter of 2018 where it elected to change its accounting policy to account for forfeitures as they occur rather than estimating expected forfeitures. Share-based compensation expense for the three and nine months ended June 30, 2017 was recorded net of estimated forfeitures. See Note 1, "Summary of Significant Accounting Policies" for further information.

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 29, 2018			June 30, 2017			June 29, 2018			June 30, 2017
Employee Stock Option Plans
Expected term (in years)	3.85			3.99			3.83			3.99
Risk-free interest rate	2.8		%	1.6		%	2.2		%	1.7		%
Expected volatility	21.0		%	17.6		%	19.0		%	21.3		%
Expected dividend	—		%	—		%	—		%	—		%
Weighted average fair value at grant date	$	24.93		$	15.93		$	20.82		$	16.11

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 29, 2018			June 30, 2017			June 29, 2018			June 30, 2017
Employee Stock Purchase Plan
Expected term (in years)	0.50			0.50			0.50			0.50
Risk-free interest rate	2.0		%	1.0		%	1.6		%	0.7		%
Expected volatility	32.9		%	18.2		%	25.2		%	20.3		%
Expected dividend	—		%	—		%	—		%	—		%
Weighted average fair value at grant date	$	28.41		$	18.42		$	24.56		$	18.92

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



(In millions)	Shares Available for Grant
Balance at September 29, 2017	2.5
Authorized ⁽¹⁾	6.0
Granted	(1.8	)
Cancelled or expired	0.4
Balance at June 29, 2018	7.1


⁽¹⁾	On February 8, 2018, the Company's stockholders approved its Fifth Amended and Restated 2005 Omnibus Stock Plan ("2005 Plan") to increase the number of shares authorized for issuance by 6.0 million shares.

For purposes of the total number of shares available for grant under the 2005 Plan, any shares subject to awards of stock options and stock appreciation rights are counted against the share reserve limit as one share for every one share subject to the award. Awards other than stock options and stock appreciation rights are counted against the share reserve limit as 2.6 shares for every one share awarded on or after February 9, 2012. The shares reserve limit is further adjusted to reflect a maximum payout that could be issued for each performance grant. The maximum payouts that could be issued for each performance grant are 2.0 shares for fiscal year 2018 grants, 1.75 shares for fiscal years 2017 and 2016 grants, and 2.0 shares for fiscal year 2015 grants. All awards may be subject to restrictions on transferability and continued employment as determined by the Compensation and Management Development Committee.

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



	Options Outstanding
(In millions, except per share amounts)	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value⁽¹⁾
Balance at September 29, 2017	2.3		$	74.08
Granted	0.6		111.57
Cancelled or expired ⁽²⁾	—		81.43
Exercised	(0.6	)	70.97
Balance at June 29, 2018	2.3		$	85.33	4.9	$	66.4

Exercisable at June 29, 2018	1.2		$	74.00	3.9	$	46.0

⁽¹⁾

The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of VMS common stock of $113.72 as of June 29, 2018, the last trading date of the third quarter of fiscal year 2018, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.


⁽²⁾	The cancelled and expired shares were not material for disclosure.

As of June 29, 2018, there was $15.8 million of total unrecognized compensation expense related to stock options granted under the Company's employee stock plans. This unrecognized compensation expense is expected to be recognized over a weighted average period of 2.1 years.

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



(In millions, except per share amounts)	Number of Shares		Weighted Average Grant-Date Fair Value
Balance at September 29, 2017	0.9		$	75.37
Granted	0.3		111.93
Vested	(0.3	)	76.61
Cancelled or expired	(0.1	)	86.13
Balance at June 29, 2018	0.8		$	88.79

As of June 29, 2018, unrecognized compensation expense totaling $40.2 million was related to awards of restricted stock units, deferred stock units and performance units granted under the Company's employee stock plans. This unrecognized share-based compensation expense is expected to be recognized over a weighted average period of 1.9 years.