NOTE 12: Employee Stock Plans

The Company has three share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans for fiscal 2013, 2012, and 2011 was $9.6 million, $9.5 million, and $7.9 million, respectively. The total income tax benefit recognized in the income statement for the share-based compensation arrangement for fiscal 2013, 2012, and 2011 was $3.0 million, $2.9 million, and $2.7 million, respectively.

Employee Stock Purchase Plan

The Company offers an employee stock purchase plan to its employees. The plan qualifies as a noncompensatory employee stock purchase plan under Section 423 of the Internal Revenue Code. Employees are eligible to participate through payroll deductions subject to certain limitations.

The plan is as a safe harbor design where shares are purchased by participants at 95% of the fair market value on the purchase date and, therefore, compensation cost is not recorded. During fiscal 2013, employees purchased 30,873 shares at a fair market value price of $67.97 per share. At the end of fiscal 2013, the Company had reserved 73,272 shares for issuance under its employee share-save scheme for U.K. employees, leaving a balance of 641,112 shares available for issuance in the future. As of October 25, 2013, deductions aggregating $738,490 were accrued for the purchase of shares on December 15, 2013.

Employee Share-Save Scheme

In 2009, the Company began offering shares under its employee share-save scheme for U.K. employees. This plan allows participants the option to purchase shares at 95% of the market price of the stock as of the beginning of the offering period. The term of these options is three years. The share-save scheme is not a “safe-harbor” design, and, therefore, compensation cost is recognized on this plan.

Under the employee share-save scheme, option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. The Company granted 16,722, 45,063 and 9,956 options in fiscal 2013, 2012, and 2011, respectively. The weighted-average grant date fair value of options granted in fiscal 2013 was $20.24 per share. During fiscal 2013, 10,468 options were exercised at a weighted average exercise price of $41.04.

The fair value of the awards under the employee share-save scheme was estimated using a Black-Scholes pricing model which uses the assumptions noted in the following table. The risk-free rate for the contractual life of the option is based on the U.S. Treasury zero coupon issues in effect the time of grant.


	2013			2012			2011

Volatility		36.97	%		38.96	%		51.10%
Risk-free interest rate		0.40	%		0.38	%		0.98%
Expected life (years)		3			3			3
Dividends		0			0			0

Equity Incentive Plan

The Company also provides an equity incentive plan for officers and key employees. At the end of fiscal 2013, the Company had 3,665,557 shares reserved for issuance to officers and key employees, of which 1,776,939 shares were available to be granted in the future.

The Board of Directors authorized the Compensation Committee to administer awards granted under the equity incentive plan and to establish the terms of such awards. Awards under the equity incentive plan may be granted to eligible employees of the Company over the 10-year period ending March 5, 2023. Options granted generally become exercisable ratably over a period of four years following the date of grant and expire on the tenth anniversary of the grant. Option exercise prices are equal to the fair market value of the Company’s common stock on the date of grant. The weighted-average grant date fair value of the options granted in fiscal 2013 and 2012 was $29.65 per share and $24.61 per share, respectively.

The fair value of each option granted by the Company was estimated using a Black-Scholes pricing model which uses the assumptions noted in the following table. The Company uses historical data to estimate volatility of the Company’s common stock and option exercise and employee termination assumptions. The range of the expected term reflects the results from certain groups of employees exhibiting different behavior. The risk-free rate for the periods within the contractual life of the grant is based upon the U.S. Treasury zero coupon issues in effect at the time of the grant.

2013

2012

2011

Volatility

41.89 – 44.25

41.62 – 44.29

40.8 – 42.8%

Risk-free interest rate

0.79 – 1.88

0.91 – 2.11

2.02 – 3.64%

Expected life (years)

4.5 – 9.5

Dividends

The following table summarizes the changes in outstanding options granted under the Company’s equity incentive plan:


	2013					2012					2011
	Shares Subject to Option			Weighted Average Exercise Price		Shares Subject to Option			Weighted Average Exercise Price		Shares Subject to Option			Weighted Average Exercise Price
Outstanding, beginning of year		2,124,300		$	46.18		1,825,300		$	44.49		1,838,950		$	39.31
Granted		257,000			65.58		386,400			52.97		331,300			67.03
Exercised		(518,537	)		37.89		(60,775	)		36.52		(295,175	)		37.03
Forfeited/cancelled		(29,025	)		55.83		(26,625	)		50.68		(49,775	)		47.28

Outstanding, end of year		1,833,738		$	51.09		2,124,300		$	46.18		1,825,300		$	44.49

Exercisable, end of year		1,075,788		$	45.65		1,258,900		$	41.89		994,950		$	39.85

The aggregate intrinsic value of the option shares outstanding and exercisable at October 25, 2013, was $54.5 million and $37.8 million, respectively.

The number of option shares vested or that are expected to vest at October 25, 2013, was 1.7 million and the aggregate intrinsic value was $52.4 million. The weighted average exercise price and weighted average remaining contractual term of option shares vested or that are expected to vest at October 25, 2013, was $50.64 and 6.0 years, respectively. The weighted-average remaining contractual term of option shares currently exercisable is 4.6 years as of October 25, 2013.

The table below presents stock activity related to stock options exercised in fiscal 2013 and 2012:


In Thousands	2013		2012

Proceeds from stock options exercised	$	20,072	$	5,240
Tax benefits related to stock options exercised	$	2,961	$	366
Intrinsic value of stock options exercised	$	18,448	$	1,751

Total unrecognized compensation expense for stock options that have not vested as of October 25, 2013, is $6.0 million, which will be recognized over a weighted average period of 1.9 years. The total fair value of option shares vested during the year ended October 25, 2013, was $7.9 million.

The following table summarizes information for stock options outstanding at October 25, 2013:


	Options Outstanding			Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Remaining Life (years)	Weighted Average Price	Shares		Weighted Average Price

$ 19.65 – 38.00	223,975	4.1	$ 31.05		223,975	$ 31.05
38.01 – 40.00	193,413	2.4	38.92		193,413	38.92
40.01 – 50.00	285,375	5.5	41.87		213,350	42.08
50.01 – 52.00	278,850	8.0	51.06		70,525	51.03
52.01 – 65.00	590,025	6.2	58.79		329,825	56.87
65.01 – 82.01	262,100	8.7	69.94		44,700	73.57

The Company granted 55,280 restricted stock units (RSUs) during fiscal 2013. The fair value of each RSU granted by the Company is equal to the fair market value of the Company’s common stock on the date of grant. RSUs granted generally have a three-year cliff vesting schedule. There were no restricted stock units issued in fiscal 2012 or fiscal 2011.

The following table summarizes the changes in RSUs granted under the Company’s equity incentive plans:


	2013
	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Life (years)

Non-vested, beginning of year		0		$	.00
Granted		55,280			70.23
Forfeited/cancelled		(400	)		66.55

Non-vested, end of year		54,880		$	70.26		2.5

Total unrecognized compensation expense for RSUs that have not vested as of October 25, 2013, is $2.6 million, which will be recognized over a weighted average period of 1.9 years.