Stock-Based Compensation

9 Months Ended

Sep. 07, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, Compensation – Stock Compensation (“ASC 718”). All share and per share data in this Quarterly Report on Form 10-Q has been presented to reflect the two-for-one stock split in the form of a 100 percent stock dividend payable on November 1, 2013 to stockholders of record on October 1, 2013. The Company recognized compensation expense of $7.4 million and $21.1 million, and related income tax benefits of $2.6 million and $7.1 million, for grants under its stock-based compensation plans for the 12 and 36 weeks ended September 7, 2013, respectively.

The Company recognized compensation expense of $3.1 million and $11.0 million, and related income tax benefits of $1.0 million and $3.6 million, for grants under its stock-based compensation plans for the 12 and 36 weeks ended September 8, 2012, respectively.

Stock-based compensation expense recognized in the consolidated condensed statements of operations and comprehensive income is based on awards ultimately expected to vest and, as such, has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes model. The estimated weighted-average fair value for each option granted was $5.22 and $5.36 for the 36 weeks ended September 7, 2013 and September 8, 2012, respectively, with the following weighted-average assumptions:

	12 Weeks Ended				36 Weeks Ended
	September 7, 2013		September 8, 2012		September 7, 2013		September 8, 2012
Expected market price volatility (1)	30.8	%	36.9	%	33.3	%	37.8	%
Risk-free interest rate (2)	1.1	%	0.5	%	0.6	%	0.6	%
Dividend yield (3)	1.0	%	1.3	%	1.2	%	1.3	%
Expected term (4)	4 years		4 years		4 years		4 years

(1) Based on historical volatility of the Company’s common stock. The expected volatility is based on the daily percentage change in the price of the stock over the four years prior to the grant.

(2) Represents the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.

(3) Represents the Company’s cash dividend yield for the expected term.

(4) Represents the period of time that options granted are expected to be outstanding. As part of the determination of the expected term, the Company concluded that all employee groups exhibit similar exercise and post-vesting termination behavior.

The Company issued 237,526 and 2,142,090 shares of common stock in connection with new restricted stock grants made and the exercise of stock options during the 12 and 36 weeks ended September 7, 2013, respectively. During the 12 and 36 weeks ended September 7, 2013, the Company canceled 59,748 and 171,388 shares, respectively, of common stock issued under restricted stock awards as a result of forfeitures.

The Company issued 709,734 and 2,385,500 shares of common stock in connection with new restricted stock grants made and the exercise of stock options during the 12 and 36 weeks ended September 8, 2012, respectively. During the 12 and 36 weeks ended September 8, 2012, the Company canceled 41,474 and 72,692 shares, respectively, of common stock issued under restricted stock awards as a result of forfeitures.