Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.6
Stock-Based Compensation
12 Months Ended
Sep. 29, 2012
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

13. Stock-Based Compensation

In February 2003, the Company adopted the 2003 Omnibus Equity Incentive Plan (the “2003 Plan”) which provides for the grant of options and restricted stock to key employees, directors and consultants of the Company up to an aggregate of 2.5 million shares of common stock of the Company. The 2003 Plan is administered by the Compensation Committee of the Board of Directors, which is comprised only of independent directors, and which must approve individual awards to be granted, vesting and exercise of share conditions. In February 2005, the Company’s shareholders approved an amendment to the 2003 Plan to increase the number of shares authorized for issuance there under by 3.3 million shares, resulting in a total of 5.8 million shares authorized for issuance under the 2003 Plan.

In connection with a dividend payable in the form of two shares of the Class A Common Stock for each outstanding share of Common Stock and Class B Common Stock on February 5, 2007, the 2003 Plan was amended to include 9,734,982 shares of Class A Common Stock authorized for issuance. In February 2009, the Company’s shareholders approved an increase in the number of shares authorized for issuance under the 2003 Plan by an additional 5,000,000 shares of Class A Common Stock and to authorize for issuance 500,000 shares of Preferred Stock. In February 2012, the Company’s shareholders approved an increase in the number of shares authorized for issuance under the 2003 Plan by an additional 5,000,000 shares of Class A Common Stock. As a result of these amendments, there is a total of 5,800,000 shares of Common Stock, 19,734,982 shares of Class A Common Stock and 500,000 shares of Preferred Stock authorized under the 2003 Plan. If and when the Company issues any shares of Preferred Stock under the 2003 Plan, it will reduce the amount of Class A Common Stock available for future issuance in an amount equal to the number of shares of Class A Common Stock that are issuable upon conversion of such Preferred Stock. As of September 29, 2012, there were approximately 3.1 million shares of Common Stock, 9.1 million shares of Class A Common Stock and no shares of Preferred Stock reserved for outstanding equity awards, and there were 1.9 million shares of Common Stock, 9.0 million shares of Class A Common Stock and 0.5 million shares of Preferred Stock remaining for future awards.

The Company has a Nonemployee Director Stock Option Plan (the “Director Plan”) which provides for the grant of options and restricted stock to nonemployee directors of the Company. The Director Plan, as amended in 2001 and 2006, provides for the granting to each independent director of options to purchase a number of shares equal to $200,000 divided by the fair market value of the Company’s common stock on the date of each annual meeting of stockholders and a number of shares of restricted stock equal to $20,000 divided by such fair market value.

Stock Option Awards

The Company recognized share-based compensation expense of $7.5 million, $7.4 million and $5.6 million for the years ended September 29, 2012, September 24, 2011 and September 25, 2010, respectively, as a component of selling, general and administrative expenses. Share-based compensation expense in fiscal 2012, 2011 and 2010 consisted of $3.8 million, $3.1 million and $2.5 million for stock options, and $1.7 million, $2.4 million and $1.1 million for restricted stock awards. Share-based compensation expense in fiscal 2012, 2011 and 2010 also includes $2.0 million, $1.9 million and $1.9 million for the Company’s 401(k) matching contributions.

Prior to fiscal 2008, stock options granted were generally exercisable with a 30 month cliff vesting and 42 month expiration, but were also granted with vesting increments of 20%, 25% or 33% per year beginning two, three or four years from the date of grant and expiring one year after the last increment has vested.

From fiscal 2008 to fiscal 2011, the Company granted stock options under its 2003 Plan that included performance targets and time-based vesting to key employees and executives. The performance-based options contingently vested up to 20% each year over the following 5 years dependent upon service and the achievement of annual or cumulative target performance measures and have contractual lives of 6 years. The target performance measures included various business unit, segment and company-wide performance goals, including adjusted earnings before taxes and net controllable assets. If any of the options subject to the performance target measurements did not vest on any particular vesting date because the Company, segment and/or business unit performance had not been achieved, such options will vest and become exercisable if at the end of the following fiscal year, the cumulative target for that later fiscal year has been achieved. The options were granted at the then-current market price, except for 4.4 million shares that were granted at prices significantly above the grant date market price. Of the options granted in fiscal 2008, approximately 216,000 options scheduled to possibly vest in each of fiscal years 2009 and 2010 were amended and were only subject to service vesting conditions. The fair value of each performance-based option granted was estimated on the date of grant using the same option valuation model used for options granted as service vesting only. In fiscal 2011, 100% of the performance options granted in fiscal 2010 that were eligible to vest in fiscal 2011 had vested. In fiscal 2011, approximately 97%, on a cumulative basis, of the performance options granted in fiscal 2009 that were eligible to vest in fiscal 2011 had vested. In fiscal 2011, approximately 99%, on a cumulative basis, of the performance options granted in fiscal 2008 that were eligible to vest in fiscal 2009 through fiscal 2011 had vested.

In March 2012, the Company eliminated all of the past and future performance goals relating to stock options granted from fiscal 2008 to fiscal 2011, except for the performance goals relating to the overall Company performance. The Company took this action because, as a result of the Company’s reorganization around functional lines during 2011, the extent to which cumulative performance targets for segments or business units have been or may be achieved has become difficult or impossible to measure and the changes underway within the Company were not contemplated when the Company granted the options. After the amendment, 20% of the shares covered by each award continue to be performance-based. The time vested component of the options did not change. Approximately 250 employees were affected by the modification, and no additional compensation cost was recorded.

The Company currently estimates the remaining performance-based component of the options granted in fiscal 2008 and fiscal 2009 are probable of achievement and are recording the related expense over the estimated service period. The Company currently estimates the performance-based component of the options granted in fiscal 2010 and 2011 are not probable of achievement and are not recording related expense. As of September 29, 2012, there were 7.0 million of unvested options, of which approximately 1.0 million are subject to performance based vesting criteria. To the extent Company goals are or are not achieved, the amount of stock-based compensation recognized in the future will be adjusted.

During fiscal 2012, the Company granted time-based stock options with an exercise price based on the closing fair market value date of the grant. The options granted in fiscal 2012 vest in four annual installments commencing one year from the date of grant and expire six years after the grant date.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. Expected stock price volatilities are estimated based on the Company’s historical volatility. The expected term of options granted is based on analyses of historical employee termination rates, option exercises and the contractual term of the option. The risk-free rates are based on U.S. Treasury yields, for notes with comparable terms as the option grants, in effect at the time of the grant. For purposes of this valuation model, no dividends have been assumed.

The Company’s calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life from the date of grant, 3.5 years in fiscal 2012, 3.5 years in fiscal 2011 and 3.5 years in fiscal 2010; stock price volatility, 37.9% in fiscal 2012, 36.4% in fiscal 2011 and 37.3% in fiscal 2010; risk free interest rates, 0.9% in fiscal 2012, 2.2% in fiscal 2011 and 2.0% in fiscal 2010; and no dividends during the expected term.

 

The following table summarizes option activity for the period ended September 29, 2012:

 

                                 
    Number of
Shares
(in thousands)
    Weighted
Average Exercise
Price per Share
    Weighted Average
Remaining
Contractual Life
    Aggregate
Intrinsic Value
(in thousands)
 

Outstanding at September 24, 2011

    12,110     $ 10.66       4 years     $ 2,956  

Granted

    1,937     $ 9.53                  

Exercised

    (1,157   $ 6.32                  

Cancelled or expired

    (1,252   $ 12.28                  
   

 

 

                         

Outstanding at September 29, 2012

    11,638     $ 10.73       3 years     $ 22,172  
   

 

 

                         

Exercisable at September 25, 2010

    3,422     $ 11.67       2 years     $ 3,794  

Exercisable at September 24, 2011

    4,162     $ 11.32       3 years     $ 1,139  

Exercisable at September 29, 2012

    4,601     $ 11.34       2 years     $ 6,708  

Expected to vest after September 29, 2012

    6,305     $ 10.32       4 years     $ 2,858  

The weighted average grant date fair value of options granted during the fiscal years ended September 29, 2012, September 24, 2011 and September 25, 2010 was $2.72, $2.04 and $2.65. The total intrinsic value of options exercised during the fiscal years ended September 29, 2012, September 24, 2011 and September 25, 2010 was $5.1 million, $2.6 million and $2.2 million, respectively.

As of September 29, 2012, there was $10.8 million of total unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a remaining weighted average vesting period of 3 years.

Restricted Stock Awards

As of September 29, 2012 and September 24, 2011, there were approximately 785,000 and 804,000 shares, respectively, of restricted stock awards outstanding. The awards generally vest in 20% or 25% increments, some after a two or three year waiting period, over a six or seven year period of employment after the grant date.

Restricted stock award activity during the three fiscal years in the period ended September 29, 2012 is summarized as follows:

 

                 
    Number of
Shares
    Weighted Average
Grant Date

Fair Value per
Share
 
    (in thousands)        

Nonvested at September 26, 2009

    518     $ 11.39  

Granted

    180     $ 9.54  

Vested

    (134   $ 10.15  

Forfeited

    (132   $ 11.66  
   

 

 

         

Nonvested at September 25, 2010

    432     $ 10.60  

Granted

    496     $ 9.32  

Vested

    (120   $ 12.38  

Forfeited

    (4   $ 13.00  
   

 

 

         

Nonvested at September 24, 2011

    804     $ 9.79  

Granted

    159     $ 9.16  

Vested

    (98   $ 12.12  

Forfeited

    (80   $ 8.32  
   

 

 

         

Nonvested at September 29, 2012

    785     $ 9.53  
   

 

 

         

 

The weighted average grant date fair value of restricted stock awards granted during the fiscal years ended September 29, 2012, September 24, 2011 and September 25, 2010 was $9.16, $9.32 and $9.54, respectively. The aggregate fair value as of the vesting date of restricted shares that vested was $0.9 million, $1.1 million and $1.3 million for fiscal 2012, 2011 and 2010, respectively.

As of September 29, 2012, there was $4.5 million of unrecognized compensation cost related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of four years.