14. Stock-Based Employee Benefit Plans

Description of Stock Option and Share Plans

We maintained the 1992 Long-term Incentive Plan (the “1992 Plan”) under which we could grant stock options, stock appreciation rights, restricted stock, restricted stock units and common stock to officers, key employees and non-employee directors. The 1992 Plan expired by its terms on February 4, 2012.

In November 2003, our Board of Directors approved the adoption of the 2003 Employment Inducement Award Plan (the “2003 Plan”). The 2003 Plan reserved 2,250,000 shares of common stock solely for the granting of inducement stock options and other awards, as defined, that met the “employment inducement award” exception to the New York Stock Exchange’s listing standards requiring shareholder approval of equity-based inducement incentive plans. Except for the employment inducement award criteria, awards under the 2003 Plan were generally consistent with those made under our 1992 Plan. The Compensation Committee terminated the 2003 Plan, effective February 7, 2012.

On February 7, 2012 our shareholders approved the adoption of the 2012 Long-Term Incentive Plan (the “2012 Plan”). The 2012 Plan authorizes the issuance of 6,000,000 shares of our common stock. Unused shares under the 1992 Plan and the 2003 Plan will not be available for grants under the 2012 Plan. Under the terms of the 2012 Plan, the pool of shares available for issuance may be used for all types of equity awards available under the 2012 Plan, which include stock options, stock appreciation rights, restricted stock awards, stock unit awards and other stock-based awards. All employees, consultants and advisors of FICO or any subsidiary, as well as all non-employee directors will be eligible to receive awards under the 2012 Plan. As of September 30, 2013, 1,731,492 shares remained available for grants under this plan. The 2012 Plan will terminate on the tenth anniversary of its adoption by our Board of Directors. Stock option awards granted typically have a maximum term of seven years and vest ratably over four years. Stock option awards granted prior to October 1, 2005 under the 1992 Plan typically had a maximum term of ten years and vested ratably over four years.

Description of Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“Purchase Plan”), we are authorized to issue up to 5,062,500 shares of common stock to eligible employees. Employees may have up to 10% of their base salary withheld through payroll deductions to purchase FICO common stock during semi-annual offering periods. The purchase price of the stock is 85% of the fair market value on the exercise date (the last day of each offering period). Offering period means approximately six-month periods commencing (a) on the first trading day on or after January 1 and terminating on the last trading day in the following June, and (b) on the first trading day on or after July 1 and terminating on the last trading day in the following December. The Purchase Plan was suspended effective January 1, 2009 and employees cannot contribute to the Purchase Plan until the suspension is repealed.

At September 30, 2013, 2,707,966 shares remained available for issuance.

Share-Based Compensation Expense

We recorded share-based compensation expense of $25.9 million, $21.2 million and $15.5 million in fiscal years 2013, 2012 and 2011, respectively. The total tax benefit related to this share-based compensation expense was $9.2 million, $7.8 million and $5.8 million in fiscal 2013, 2012 and 2011, respectively. As of September 30, 2013, there was $54.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted average period of 2.67 years.

Determining Fair Value

We estimate the fair value of stock options granted using the Black-Scholes option valuation model and we amortize the fair value on a straight-line basis over the vesting period. We used the following assumptions to estimate the fair value of our stock options during fiscal 2013, 2012 and 2011:


	Year Ended September 30,
	2013			2012			2011
Stock Options:
Average expected term (years)		4.10			4.31			4.27
Expected volatility (range)		35-37	%		38-41	%		39-41	%
Weighted average volatility		37	%		40	%		40	%
Risk-free interest rate (range)		0.5-1.1	%		0.5-1.5	%		0.6-2.1	%
Average expected dividend yield		0.2	%		0.3	%		0.3	%
Expected dividend yield (range)		0.2	%		0.2-0.3	%		0.3	%

Expected Volatility. We estimate the volatility of our common stock at the date of grant based on a combination of the implied volatility of publicly traded options on our common stock and our historical volatility rate.

Expected Term. The expected term represents the period that our stock options are expected to be outstanding. We estimate the expected term based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.

Dividends. The dividend yield assumption is based on historical dividend payouts.

Risk-Free Interest Rate. The risk-free interest rate assumption is based on observed interest rates appropriate for the term of our employee options.

Forfeitures. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest.

The fair value of restricted stock units granted is the fair value of our common stock on the date of grant adjusted for the expected dividend yield. We amortize the fair value on a straight-line basis over the vesting period.

Stock-Based Activity

The following table summarizes option activity during fiscal 2013:


	Shares			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In thousands)
Outstanding at October 1, 2012		4,034		$	33.01
Granted		757			42.86
Exercised		(1,360	)		31.79
Forfeited		(334	)		26.03
Expired		(410	)		44.73

Outstanding at September 30, 2013		2,687		$	35.48		4.86	$	53,203

Options exercisable at September 30, 2013		942		$	32.57		3.57	$	21,388

Vested and expected to vest at September 30, 2013		2,435		$	35.03		4.78	$	49,312

The weighted average fair value of options granted were $12.53, $12.32 and $8.02 during fiscal 2013, 2012 and 2011, respectively. The aggregate intrinsic value of options outstanding at September 30, 2013 was calculated as the difference between the exercise price of the underlying options and the market price of our common stock for all 2.7 million outstanding shares, which had exercise prices lower than the $55.28 market price of our common stock at September 30, 2013. The total intrinsic value of options exercised was $19.8 million, $31.2 million and $4.4 million during fiscal 2013, 2012 and 2011, respectively, determined as of the date of exercise.

The following table summarizes restricted stock unit activity during fiscal 2013:


	Shares			Weighted- average Price
	(In thousands)
Outstanding at October 1, 2012		1,732		$	33.31
Granted		782			42.59
Released		(603	)		30.08
Forfeited		(195	)		34.57

Outstanding at September 30, 2013		1,716			38.54

The weighted average fair value of restricted stock units granted were $42.27, $37.8 and $24.38 during fiscal 2013, 2012 and 2011, respectively. The total intrinsic value of restricted stock units that vested was $26.7 million, $15.5 million and $9.7 million during fiscal 2013, 2012 and 2011, respectively, determined as of the date of vesting.

In fiscal 2013 we received $30.3 million in cash from stock option exercises, with the tax benefit realized for the tax deductions from these exercises of $6.8 million.

Due primarily to our ongoing program of repurchasing shares on the open market, we had approximately 54.1 million treasury shares at September 30, 2013. We satisfy stock option exercises, Purchase Plan issuances and vesting of restricted stock units from this pool of treasury shares.