10. Share-Based Compensation

The Company has granted equity-classified awards in the form of stock options, restricted stock and restricted stock units (“RSUs”) and liability-classified awards in the form of performance units, cash-settled stock appreciation rights (“SARs”) and cash-settled stock-based awards (restricted cash units or “RCUs”) to certain employees and directors.

Equity-Classified Awards

Stock options were granted for a fixed number of shares with an exercise price equal to or greater than the fair value of the shares at the date of grant. Restricted stock and RSUs were granted with the fair value determined based on the Company's closing stock price on the date of grant. Share-based compensation expense for equity-classified awards is amortized to expense over the vesting period. During the first half of fiscal 2011, the Company issued RSUs to members of its Board of Directors.

Liability-Classified Awards

Performance Units

During fiscal 2009, the Company awarded 600,000 performance units to each of the Company’s Co-Chief Executive Officers pursuant to the Company’s 2006 Equity Incentive Plan. Each award will vest on January 1, 2012, at which time the value of such awards, if any, will be determined and paid in cash.

The cash value of the performance units will be equal to the amount, if any, by which the Company's final average stock price as defined in the agreements, exceeds the strike price. The total value of the performance units was originally subject to a maximum value of $12.50 per unit. During December 2010, the outstanding performance unit award associated with one of the Co-Chief Executive Officers was modified such that the maximum value per unit was reduced to $9.00 per unit. All other terms remain the same as specified in the original award agreement. The fair value of the performance units is remeasured at each reporting period until the awards are settled. At July 3, 2011 and January 2, 2011, the fair value of the performance units with a maximum value of $12.50 per unit was $6.11 and $8.30 per unit, respectively. At July 3, 2011 and January 2, 2011, the fair value of the performance units with a maximum value of $9.00 per unit was $5.05 and $6.41 per unit, respectively. The fair value is calculated using a Monte-Carlo simulation model which incorporates the historical performance, volatility and correlation of the Company's stock price and the Russell 2000 Index. At July 3, 2011 and January 2, 2011, the performance unit liability was reflected in the consolidated balance sheets as $5.5 million of accrued expenses and $5.8 million of other liabilities, respectively.

Total cumulative expense recognized for the performance units from date of grant through July 3, 2011 was $5.5 million based on the current estimated fair values of $6.11 and $5.05 per unit. The amount and timing of the recognition of additional expense or benefit, if any, will be dependent on the estimated fair value at each quarterly reporting date. Any changes in fair value may not occur ratably over the remaining two quarters of the award term; therefore, share-based compensation expense related to the performance units could vary significantly in future periods.

Cash-Settled Awards

The cash value of SARs will be based on the appreciation, if any, of the Company's stock price on the date of settlement. The cash value of RCUs will be based on the Company's stock price on the date of settlement. The fair value of SARs and RCUs is remeasured at each reporting period until the awards are settled. The fair value of SARs is equal to the value calculated per the Black-Scholes model and the fair value of RCUs is equal to the sum of the value calculated per the Black-Scholes model and the Company's stock price at the reporting date. At July 3, 2011 and January 2, 2011, the recorded liability of cash-settled awards, reflected in other liabilities in the consolidated balance sheets, was $5.3 million and $4.6 million, respectively. There were no SARs or RCUs granted during the six months ended July 3, 2011.

The fair value of the SARs and RCUs was estimated using a Black-Scholes option pricing model with the following weighted average assumptions:



	Three and Six Months Ended July 3, 2011				Three and Six Months Ended July 4, 2010
	RCUs		SARs		RCUs		SARs
Weighted average risk-free interest rate	0.4	%	1.0	%	0.8	%	1.4	%
Expected life of cash-settled awards (years)	1.5		3.1		2.6		4.1
Expected stock volatility	32.6	%	41.8	%	50.6	%	45.2	%
Expected dividend yield⁽¹⁾	0.0	%	0.0	%	0.0	%	0.0	%


(1)	Unvested SARs and RCUs are eligible to receive dividend-equivalents in the form of cash or additional awards during the vesting period, and as such, no expected dividend yield is included in the fair value assumptions for these awards.

Share-based compensation expense for performance units, SARs and RCUs is recognized over the service period with the impact of updated fair values recognized as cumulative adjustments to share-based compensation expense at the end of each reporting period.

Share-Based Compensation Expense

Share-based compensation expense for equity and liability-classified awards is classified as follows (in thousands):



	Three Months Ended						Six Months Ended
	July 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010
Equity-classified awards:
Labor	$	—		$	32		$	—		$	77
General and administrative	1,082			1,504			2,091			2,607
Liability-classified awards:
General and administrative	(123		)	1,140			600			2,957
Total share-based compensation ⁽¹⁾	959			2,676			2,691			5,641
Less tax benefit	(246		)	(768		)	(756		)	(1,658		)
Total share-based compensation, net of tax	$	713		$	1,908		$	1,935		$	3,983


(1)	Share-based compensation expense includes expense related to the cash payment of dividend equivalent units on unvested RCUs and expense related to the payment of cash dividends on unvested restricted stock awards that are not expected to ultimately vest.

Unvested Share-Based Compensation Expense

At July 3, 2011, unvested share-based compensation expense for equity-classified awards, net of forfeitures, totaled $0.6 million for stock options and $1.1 million for restricted stock and RSUs. This expense will be recognized over the remaining weighted average vesting period which is approximately 1.0 years for stock options and 0.6 years for restricted stock and RSUs.

At July 3, 2011, unvested share-based compensation expense for liability-classified awards totaled $1.2 million for performance units and $4.7 million for RCUs and SARs. This expense will be recognized over the remaining weighted average vesting period which is approximately 0.5 years for performance units and 1.7 years for RCUs and SARs.