EMPLOYEE BENEFIT PLANS
Deferred Compensation Plans
The Company has a 401(k) plan for all employees who have been with the Company for a period of six months or more. The Company matches portions of employees’ voluntary contributions. Additional employer contributions in the form of profit sharing may also be made at the Company’s discretion. Expenses for the plan were $6.4 million, $5.6 million and $3.9 million in fiscal 2013, 2012 and 2011 respectively.
The Company’s Supplemental Executive Retirement Plan (SERP) is a non-qualified deferred compensation program that provides benefits payable to certain management employees upon retirement, death, or termination of employment. Under the SERP, the Company accrues an unfunded benefit based on a percentage of the eligible employees’ salaries, as well as an interest factor based upon a predetermined formula. The Company’s liabilities related to the SERP were $21.5 million and $19.4 million at September 30, 2013 and 2012, respectively. The Company recorded $3.6 million, $3.1 million and $2.9 million of expense for this plan in fiscal 2013, 2012 and 2011, respectively.
The Company has a deferred compensation plan available to a select group of employees which allows participating employees to contribute compensation into the plan on a before tax basis and defer income taxation on the contributions until the funds are withdrawn from the plan. The participating employees designate investments for their contributions; however, the Company is not required to invest the contributions in the designated investments. The Company’s net liabilities related to the deferred compensation plan were $22.9 million and $23.4 million at September 30, 2013 and 2012, respectively. The Company records as expense the amount that the employee contributions would have earned had the funds been invested in the designated investments. In fiscal 2013 and 2012, the Company recorded expenses of $0.6 million and $1.6 million, respectively, for this plan, and in fiscal 2011, it recorded a reduction in expense of $0.7 million.
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan provides eligible employees the opportunity to purchase common stock of the Company at a discounted price of 85% of the fair market value of the stock on the designated dates of purchase. The price to eligible employees may be further discounted depending on the average fair market value of the stock during the period and certain other criteria. Under the terms of the plan, the total fair market value of the common stock that an eligible employee may purchase each year is limited to the lesser of 15% of the employee’s annual compensation or $25,000. Under the plan, employees purchased 63,105 shares for $1.1 million in fiscal 2013, 79,455 shares for $0.9 million in fiscal 2012 and 91,350 shares for $0.9 million in fiscal 2011.
Stock Options
The Company’s Stock Incentive Plan provides for the granting of stock options to certain key employees to purchase shares of common stock. Options are granted at exercise prices which equal the market value of the Company’s common stock at the date of the grant. The options outstanding at September 30, 2013 vest over periods of 2 to 9.75 years and expire 10 years after the dates on which they were granted.
The following table provides additional information related to stock option activity under the Company’s Stock Incentive Plan.
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| | | | | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2013 | | 2012 | | 2011 |
| Stock Options | | Weighted Average Exercise Price | | Stock Options | | Weighted Average Exercise Price | | Stock Options | | Weighted Average Exercise Price |
Outstanding at beginning of year | 17,580,031 |
| | $ | 14.24 |
| | 22,705,963 |
| | $ | 13.63 |
| | 17,658,872 |
| | $ | 14.87 |
|
Granted | 3,676,000 |
| | 23.80 |
| | — |
| | — |
| | 6,172,500 |
| | 9.97 |
|
Exercised | (1,785,412 | ) | | 16.00 |
| | (4,493,797 | ) | | 11.13 |
| | (303,535 | ) | | 8.36 |
|
Canceled or expired | (508,083 | ) | | 14.66 |
| | (632,135 | ) | | 14.46 |
| | (821,874 | ) | | 14.92 |
|
Outstanding at end of year | 18,962,536 |
| | $ | 15.91 |
| | 17,580,031 |
| | $ | 14.24 |
| | 22,705,963 |
| | $ | 13.63 |
|
Exercisable at end of year | 6,626,337 |
| | $ | 16.83 |
| | 5,815,913 |
| | $ | 18.55 |
| | 7,540,704 |
| | $ | 16.53 |
|
At September 30, 2013, there were 7.5 million shares available for future grants under the Plan.
The total intrinsic value of options exercised during fiscal 2013, 2012 and 2011 was $14.6 million, $26.4 million and $0.9 million, respectively. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the option exercise price.
The aggregate intrinsic value of options outstanding and exercisable at September 30, 2013 was $104.1 million and $33.9 million, respectively. Exercise prices for options outstanding at September 30, 2013, ranged from $9.03 to $36.92. The weighted average remaining contractual lives of options outstanding and exercisable at September 30, 2013 were 6.0 years and 4.5 years, respectively.
During fiscal 2013 and 2011, the Compensation Committee of the Board of Directors and the Board of Directors approved and granted stock options to executive officers, other officers, employees and non-management directors of the Company. There were approximately 500 recipients of the 2013 stock option grant and 350 recipients of the 2011 stock option grant who collectively may purchase approximately 3.7 million shares and 6.2 million shares, respectively, of the Company's common stock at the closing market price of the stock on the date of the grant. The stock options granted in fiscal 2013 and 2011 vest over periods of 2 to 5 years and expire 10 years after the dates on which they were granted. No stock options were granted by the Company during fiscal 2012.
The Company measures and recognizes compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The weighted average fair value of options granted in fiscal 2013 and 2011 was $10.92 per share and $3.98 per share, respectively. The fair values of the options granted were estimated on the date of their grant using the Black-Scholes option pricing model based on the following weighted average assumptions:
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| | | | | |
| Year Ended September 30, |
| 2013 | | 2012 | | 2011 |
Risk free interest rate | 1.13% | | — | | 1.26% |
Expected life (in years) | 6.46 | | — | | 6.46 |
Expected volatility | 49.30% | | — | | 46.40% |
Expected dividend yield | 0.63% | | — | | 1.50% |
For fiscal 2013, 2012 and 2011, the Company’s compensation expense related to stock option grants was $18.6 million, $15.1 million and $12.8 million, respectively, and at September 30, 2013, there was $61.8 million of total unrecognized compensation expense related to unvested stock option awards. This expense is expected to be recognized over a weighted average period of 3.9 years.
Incentive Bonus Plan
The Company's Incentive Bonus Plan provides for the Compensation Committee to award short-term performance bonuses to senior management based upon the level of achievement of certain criteria. For fiscal 2013, 2012 and 2011 the Compensation Committee approved awards whereby the Company's Chairman of the Board and its Chief Executive Officer could earn performance bonuses based upon a certain percentage of the Company's pre-tax income. Compensation expense related to these plans was $9.8 million, $4.9 million and $0.5 million in fiscal 2013, 2012 and 2011, respectively.
Restricted Stock Unit Agreement
The Company has a Restricted Stock Unit Agreement (RSU Agreement) for awards to executive officers and other key employees pursuant to the Stock Incentive Plan. Under the RSU Agreement, the Compensation Committee may award performance or service (time) based restricted stock units subject to the terms and conditions of the RSU Agreement and the Stock Incentive Plan.
In September 2010, the Compensation Committee approved and granted awards of 200,000 performance based restricted stock units (Performance RSUs) that vested at the end of a two-year performance period that ended September 30, 2012. The number of units that vested depended on the Company's relative position as compared to its peers at the end of the two-year period in achieving certain performance criteria and ranged from 0% to 200% of the number of units granted. The performance criteria were total shareholder return, return on investment, SG&A expense containment and gross profit. Each Performance RSU represented the contingent right to receive one share of the Company's common stock if the vesting conditions were satisfied. The Performance RSUs had no dividend or voting rights during the performance period. The fair value of these awards on the date of grant was $11.53 per unit. Based on the achievement of the performance criteria, 325,000 Performance RSUs were earned and vested on September 30, 2012. Compensation expense for these awards was based on the Company's performance against the peer group, the elapsed portion of the performance period and the grant date fair value of the award. Compensation expense was $2.6 million and $1.2 million in fiscal 2012 and 2011, respectively.
In fiscal 2013, 2012 and 2011, the Compensation Committee approved and granted awards of performance based units (Performance Units) that vest at the end of three-year performance periods. The number of units that ultimately vest depends on the Company's relative position as compared to its peers at the end of the three-year period in achieving certain performance criteria and can range from 0% to 200% of the number of units granted. The performance criteria are total shareholder return, return on investment, SG&A expense containment and gross profit. The earned awards will have a value equal to the number of earned units multiplied by the closing price of the Company's common stock at the end of the respective performance period and may be paid in cash, equity or a combination of both at the discretion of the Compensation Committee. The Compensation Committee also has the discretion to reduce the final payout on the Performance Units from the amount earned. The Performance Units have no dividend or voting rights during the performance period. Compensation expense related to these grants is based on the Company's performance against the peer group, the elapsed portion of the performance period and the Company's stock price at the end of the period. The following table provides additional information related to the Performance Units granted in fiscal 2013, 2012 and 2011 and outstanding at September 30, 2013.
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Grant Date | | Vesting Date | | Target Number of Performance Units | | Grant Date Fair Value per Unit | | Liability at September 30, | | Compensation Expense Year Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 | | 2011 |
| | | | | | | | (In millions) | | (In millions) |
November 2010 | | September 2013 | | 300,000 | | $ | 12.69 |
| | $ | 9.5 |
| | $ | 6.7 |
| | $ | 2.8 |
| | $ | 5.7 |
| | $ | 1.0 |
|
November 2011 | | September 2014 | | 350,000 | | 11.79 |
| | 7.4 |
| | 4.1 |
| | 3.3 |
| | 4.1 |
| | — |
|
November 2012 | | September 2015 | | 350,000 | | 22.15 |
| | 2.7 |
| | — |
| | 2.7 |
| | — |
| | — |
|
| | | | | | | | $ | 19.6 |
| | $ | 10.8 |
| | $ | 8.8 |
| | $ | 9.8 |
| | $ | 1.0 |
|
Based on the achievement of performance criteria, 487,500 Performance Units related to the awards granted in November 2010, were earned and vested on September 30, 2013. In November 2013, the Compensation Committee approved the payout of these Performance Units in the form of 487,500 shares of common stock to satisfy the award. The value of the award was $9.5 million at September 30, 2013 based on the Company's stock price on that date.
In January 2013, the Company's Board of Directors approved and granted awards of 33,333 Restricted Stock Units to non-management directors which vest in annual installments over one to three-year periods ending in January 2016. Each Restricted Stock Unit represents the contingent right to receive one share of the Company's common stock if the vesting conditions are satisfied. The Restricted Stock Units have no dividend or voting rights during the vesting period. The fair value of these awards on the date of grant was $21.49 per unit. Compensation expense related to this grant was $0.2 million in fiscal 2013.
