Share-Based Compensation

6 Months Ended

Jun. 25, 2011

Share-Based Compensation

Share-Based Compensation

11. Share-Based Compensation

The Company sponsors several share-based compensation plans. The Company recognizes compensation expense from all share-based payment transactions with employees in the consolidated financial statements based on grant date fair value. Pre-tax compensation expense related to the Company's share-based plans was $3.3 million for the second quarters of both 2011 and 2010, and $8.7 million and $5.9 million for the first six months of 2011 and 2010, respectively. Compensation expense is generally recognized on a straight-line basis over the vesting period of grants. The total income tax benefit recognized in the consolidated statement of operations for share-based compensation arrangements was $1.3 million for the second quarters of both 2011 and 2010, and $3.4 million and $2.3 million for the first six months of 2011 and 2010, respectively.

Restricted Stock and Restricted Stock Units

The Company recognizes compensation expense related to restricted stock and Restricted Stock Unit ("RSU") awards over the vesting periods based on the closing price of the Company's common stock on the grant dates. The Company calculates the grant date fair value of the RSU awards by multiplying the number of RSU awards by the closing price of the Company's common stock on the grant date. If these awards contain performance criteria, the grant date fair value is estimated assuming performance at target, and management periodically reviews actual performance against the criteria and adjusts compensation expense accordingly. Pre-tax compensation expense related to restricted stock and RSU awards was $0.7 million and $2.0 million for the second quarters of 2011 and 2010, respectively, and $3.2 million and $3.5 million for the first six months of 2011 and 2010, respectively. The remaining compensation expense to be recognized related to outstanding restricted stock and RSUs, net of estimated forfeitures, is approximately $5.2 million. The remaining compensation expense will be recognized through the second quarter of 2014.

A summary of restricted stock and RSU activity for the first six months of 2011 is presented in the following table:  

	Shares			Weighted-Average Grant Date Fair Value Per Share
Nonvested, December 25, 2010		2,111,135		$	13.89
Granted		457,188			14.55
Vested		(820,771	)		15.24
Forfeited		(129,480	)		12.43
Nonvested, June 25, 2011		1,618,072		$	13.50

Stock Options

The Company's stock options are issued at a price equal to fair market value on the grant date and typically expire within seven years of the grant date. Stock options granted under the OfficeMax Incentive and Performance Plan generally vest over a three year period. The grant date fair value used to calculate compensation expense related to stock option awards is based on the Black-Scholes option pricing model. Pre-tax compensation expense related to stock option awards was $2.6 million and $1.3 million for the second quarters of 2011 and 2010, respectively and $5.5 million and $2.4 million for the first six months of 2011 and 2010, respectively. The remaining compensation expense to be recognized related to outstanding stock options net of estimated forfeitures is approximately $14.4 million. The majority of the remaining compensation expense will be recognized through the second quarter of 2014.

A summary of stock option activity for the first six months of 2011 is presented in the following table:

	Shares			Wtd. Avg. Ex. Price
Balance at December 25, 2010		4,313,290		$	16.52
Options granted		1,034,300			16.41
Options exercised		(405,988	)		4.80
Options forfeited and expired		(220,818	)		13.44
Balance at June 25, 2011		4,720,784		$	17.65
Exercisable at June 25, 2011		1,868,023
Weighted average fair value of options granted (Black-Scholes)	$	8.69

The following table provides summarized information about stock options outstanding at June 25, 2011:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Options Outstanding		Weighted Average Contractual Life (Years)		Weighted Average Exercise Price		Options Exercisable		Weighted Average Exercise Price
$2.00 – $3.00		11,171		—	$	2.50		11,171	$	2.50
$4.00 – $5.00		902,779		4.6		4.73		506,227		4.72
$10.00 – $16.00		900,734		5.7		14.17		294,465		14.52
$16.00 – $17.00		874,940		6.6		16.86		—		16.86
$18.00 – $19.00		975,000		6.4		18.15		—		18.15
$24.00 – $37.00		1,056,160		1.4		32.01		1,056,160		32.01

At June 25, 2011, the aggregate intrinsic value was $2.7 million for outstanding stock options and $1.6 million for exercisable stock options. The aggregate intrinsic value represents the total pre-tax intrinsic value (i.e., the difference between the Company's closing stock price on the last trading day of the second quarter of 2011 and the exercise price, multiplied by the number of in-the-money stock options at the end of the quarter).

During the first six months of 2011, the Company granted stock options for 1,034,300 shares of our common stock and estimated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 2.03%, expected life of 4.5 years and expected stock price volatility of 64.74%. The risk-free interest rate assumptions are based on the applicable Treasury bill rates over the stock options' expected lives; the expected life assumptions are based on the time period stock options are expected to be outstanding based on historical experience; and the expected stock price volatility assumptions are based on the historical and implied volatility of the Company's common stock.