Shareholders' Equity

9 Months Ended

Sep. 30, 2012

Shareholders' Equity [Abstract]

SHAREHOLDERS' EQUITY

NOTE 2—SHAREHOLDERS’ EQUITY

Share-Based Compensation

As of September 30, 2012, the Company maintained (i) its Equity Incentive Plan (the “EI Plan”), which is a successor to the Company’s 2004 Stock Option, Restricted and Non-Restricted Stock Plan (the “2004 Option Plan”, and together with the EI Plan, the “Plans”) and (ii) the 2009 Employee Stock Purchase Plan (the “2009 ESPP”), which was a successor to the Company’s Amended and Restated 2004 Employee Stock Purchase Plan (the “2004 ESPP”). The EI Plan and the 2009 ESPP were each approved by the Company’s shareholders on July 10, 2008, and the 2009 ESPP was suspended for the 2012 and 2013 plan years. In addition, the Company may issue equity awards outside of the Plans. As of September 30, 2012, an aggregate of 597,015 stock appreciation rights are outstanding that were granted as inducement awards outside the EI Plan as a result of the limited number of shares remaining available for issuance thereunder. These grants vest ratably over a five year period, and if unexercised, generally expire on September 14, 2017. The exercise or measurement price for equity awards issued under the Plans or otherwise is generally equal to the closing price of KID’s common stock on the New York Stock Exchange as of the date the award is granted. Generally, equity awards under the Plans (or otherwise) vest over a period ranging from three to five years from the grant date as provided in the award agreement governing the specific grant. Options and stock appreciation rights generally expire ten years from the date of grant. Shares in respect of equity awards are issued from authorized shares reserved for such issuance or treasury shares.

The EI Plan, which became effective July 10, 2008 (at which time no further awards could be made under the 2004 Option Plan), provides for awards in any one or a combination of: (a) Stock Options, (b) Stock Appreciation Rights, (c) Restricted Stock, (d) Stock Units, (e) Non-restricted Stock, and/or (f) Dividend Equivalent Rights. Any award under the EI Plan may, as determined by the committee administering the EI Plan (the “Plan Committee”) in its sole discretion, constitute a “Performance-Based Award” (an award that qualifies for the performance-based compensation exemption of Section 162(m) of the Internal Revenue Code of 1986, as amended). All awards granted under the EI Plan are evidenced by a written agreement between the Company and each participant (which need not be identical with respect to each grant or participant) that provides the terms and conditions, not inconsistent with the requirements of the EI Plan, associated with such awards, as determined by the Plan Committee in its sole discretion. A total of 1,500,000 shares of Common Stock have been reserved for issuance under the EI Plan. In the event all or a portion of an award is forfeited, terminated or cancelled, expires, is settled for cash, or otherwise does not result in the issuance of all or a portion of the shares of Common Stock subject to the award in connection with the exercise or settlement of such award (“Unissued Shares”), such Unissued Shares will in each case again be available for awards under the EI Plan pursuant to a formula set forth in the EI Plan. The preceding sentence also applies to any awards outstanding on July 10, 2008, under the 2004 Option Plan, up to a maximum of an additional 1,750,000 shares of Common Stock. At September 30, 2012, 977,486 shares were available for issuance under the EI Plan.

The 2009 ESPP became effective on January 1, 2009. A total of 200,000 shares of Common Stock have been reserved for issuance under the 2009 ESPP. At September 30, 2012, 6,663 shares were available for issuance under the 2009 ESPP. As noted above, the 2009 ESPP has been suspended for the 2012 and 2013 plan years.

Impact on Net (Loss)

The components of share-based compensation expense follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock option expense	$	84	$	459	$	216	$	712
Restricted stock expense		9		172		26		340
Restricted stock unit expense		62		35		172		142
SAR expense		88		127		414		461
ESPP expense		—		34		—		102
Total share-based payment expense	$	243	$	827	$	828	$	1,757

The Company records share-based compensation expense in the statements of operations within the same categories that payroll expense is recorded in selling general and administrative expense. No share-based compensation expense was capitalized in inventory or any other assets for the three and nine months ended September 30, 2012 or 2011. The relevant Financial Accounting Standards Board (“FASB”) standard requires the cash flows related to tax benefits resulting from tax deductions in excess of compensation costs recognized for those equity compensation grants (excess tax benefits) to be classified as financing cash flows.

The fair value of stock options and stock appreciation rights (SARs) granted under the Plans or otherwise is estimated on the date of grant using a Black-Scholes-Merton option pricing model using assumptions with respect to dividend yield, risk-free interest rate, volatility and expected term, which are included below for SARs only, as there were no stock options issued during the three or nine months ended September 30, 2012 or 2011. Expected volatilities are calculated based on the historical volatility of KID’s Common Stock. The expected term of options or SARs granted is derived from the vesting period of the award, as well as historical exercise behavior, and represents the period of time that the award is expected to be outstanding. Management monitors exercises and employee termination patterns to estimate forfeiture rates within the valuation model. Separate groups of employees, directors and officers that have similar historical exercise behavior are considered separately for valuation purposes. The risk-free interest rate is based on the Treasury note interest rate in effect on the date of grant for the expected term of the award.

Stock Options

Stock options are rights to purchase KID’s Common Stock in the future at a predetermined per share exercise price (generally the closing price for such stock on the New York Stock Exchange on the date of grant). Stock options may be either: “Incentive Stock Options” (stock options which comply with Section 422 of the Code), or Nonqualified Stock Options (stock options which are not Incentive Stock Options).

As of September 30, 2012, the total remaining unrecognized compensation cost related to unvested stock options, net of forfeitures, was approximately $0.2 million, and is expected to be recognized over a weighted-average period of 1.3 years.

Activity regarding outstanding stock options for the nine months ended September 30, 2012 is as follows:

	All Stock Options Outstanding
	Shares			Weighted Average Exercise Price
Options Outstanding as of December 31, 2011		446,975		$	12.55
Options Granted		—			—
Options Forfeited/Cancelled*		(31,400	)	$	14.40
Options Outstanding as of September 30, 2012		415,575		$	12.41
Option price range at September 30, 2012	$	6.63 - $34.05

* See disclosure below regarding forfeitures.

The aggregate intrinsic value of the unvested and vested outstanding stock options was $0 at September 30, 2012 and December 31, 2011. The aggregate intrinsic value is the total pretax value of in-the-money stock options, which is the difference between the fair value at the measurement date and the exercise price of each stock option. No stock options were exercised during the three and nine months ended September 30, 2012 or 2011, respectively and 32,000 stock options vested during the three and nine months ended September 30, 2012.

A summary of the Company’s unvested stock options at September 30, 2012 and changes during the nine months ended September 30, 2012 is as follows:

	Options			Weighted Average Grant Date Fair Value
Unvested stock options
Unvested at December 31, 2011		107,200		$	4.63
Granted		—		$	—
Vested		(32,000	)	$	3.83
Forfeited/cancelled*		(2,280	)	$	6.58
Unvested stock options at September 30, 2012		72,920		$	4.92

* See disclosure below regarding forfeitures.

Restricted Stock

Restricted Stock is Common Stock that is subject to restrictions, including risks of forfeiture, determined by the Plan Committee in its sole discretion, for so long as such Common Stock remains subject to any such restrictions. A holder of restricted stock has all rights of a shareholder with respect to such stock, including the right to vote and to receive dividends thereon, except as otherwise provided in the award agreement relating to such award. Restricted Stock Awards are equity classified within the consolidated balance sheets. The fair value of each restricted stock grant is estimated on the date of grant using the closing price of KID’s Common Stock on the New York Stock Exchange on the date of grant.

During the three and nine months ended September 30, 2012 and 2011, respectively, there were no shares of restricted stock issued under the EI Plan or otherwise. At September 30, 2012 and December 31, 2011, there were 1,880 and 2,720 shares of unvested restricted stock outstanding, respectively. These restricted stock grants have vesting periods of five years, with fair values (per share) at date of grant ranging from $14.90 to $16.77. Compensation expense is determined for the issuance of restricted stock by amortizing over the requisite service period, or the vesting period, the aggregate fair value of the restricted stock awarded based on the closing price of KID’s Common Stock on the date of grant.

A summary of the Company’s unvested restricted stock at September 30, 2012 and changes during the nine months ended September 30, 2012 is as follows:

	Restricted Stock			Weighted Average Grant Date Fair Value
Unvested Restricted Stock
Unvested at December 31, 2011		2,720		$	16.43
Granted		—		$	—
Vested		(500	)	$	14.90
Forfeited/cancelled*		(340	)	$	16.77
Unvested restricted stock at September 30, 2012		1,880		$	16.77

* See disclosure below regarding forfeitures.

As of September 30, 2012, the total remaining unrecognized compensation cost related to issuances of restricted stock was approximately $10,300 and is expected to be recognized over a weighted-average period of 0.2 years.

Restricted Stock Units

A Restricted Stock Unit (“RSU”) is a notional account representing a participant’s conditional right to receive at a future date one (1) share of Common Stock or its equivalent in value. Shares of Common Stock issued in settlement of an RSU may be issued with or without other consideration as determined by the Plan Committee in its sole discretion. RSUs may be settled in the sole discretion of the Plan Committee: (i) by the distribution of shares of Common Stock equal to the grantee’s RSUs, (ii) by a lump sum payment of an amount in cash equal to the fair value of the shares of Common Stock which would otherwise be distributed to the grantee, or (iii) by a combination of cash and Common Stock. The RSUs issued under the EI Plan vest (and will be settled) ratably over a 5-year period commencing from the date of grant and are equity classified in the consolidated balance sheets. There were 25,000 and 127,250 RSUs issued to employees of the Company during the three and nine months ended September 30, 2012, respectively. There were 34,000 and 54,000 RSUs issued to employees of the Company during the three and nine months ended September 30, 2011, respectively.

The fair value of each RSU grant is estimated on the grant date. The fair value is set using the closing price of KID’s Common Stock on the New York Stock Exchange on the date of grant. Compensation expense for RSUs is recognized ratably over the vesting period, based upon the market price of the shares underlying the awards on the date of grant.

A summary of the Company’s unvested RSUs at September 30, 2012 and changes during the nine months ended September 30, 2012 is as follows:

	Restricted Stock Units			Weighted Average Grant-Date Fair Value
Unvested at December 31, 2011		148,560		$	5.47
Granted		127,250		$	2.70
Vested		(26,450	)	$	5.22
Forfeited/cancelled*		(19,730	)	$	4.24
Unvested at September 30, 2012		229,630		$	4.07

* See disclosure below regarding forfeitures.

As of September 30, 2012, there was approximately $0.8 million of unrecognized compensation cost related to unvested RSUs. That cost is expected to be recognized over a weighted-average period of 3.4 years.

Stock Appreciation Rights

A Stock Appreciation Right (a “SAR”) is a right to receive a payment in cash, Common Stock or a combination thereof, as determined by the Plan Committee, in an amount or value equal to the excess of: (i) the fair value, or other specified valuation (which may not exceed fair value), of a specified number of shares of Common Stock on the date the right is exercised, over (ii) the fair value or other specified amount (which may not be less than fair value) of such shares of Common Stock on the date the right is granted; provided, however, that if a SAR is granted in tandem with or in substitution for a stock option, the designated fair value for purposes of the foregoing clause (ii) will be the fair value on the date such stock option was granted. No SARs will be exercisable later than ten (10) years after the date of grant. The SARs issued under the EI Plan vest ratably over a period ranging from zero to five years and unless terminated earlier, expire on the tenth anniversary of the date of grant. SARs are typically granted at an exercise price equal to the closing price of KID’s Common Stock on the New York Stock Exchange on the date of grant. There were 668,265 and 975,015 SARs granted during the three and nine months ended September 30, 2012, respectively. There were 97,500 and 182,500 SARs granted during the three and nine months ended September 30, 2011, respectively. SARs are accounted for at fair value at the date of grant in the consolidated statement of operations, are amortized on a straight line basis over the vesting term, and are equity-classified in the consolidated balance sheets. There were no SARs exercised in the three and nine months ended September 30, 2012. There were 0 and 1,100 SARs exercised during the three and nine months ended September 30, 2011, respectively, all of which were settled in cash. There were 42,900 and 102,950 SARs vested during the three and nine months ended September 30, 2012, respectively.

The assumptions used to estimate the weighted average fair value of the SARs granted during the nine months ended September 30, 2012 and 2011 were as follows:

	Nine Months Ended September 30,
	2012			2011
Dividend yield		0	%		0	%
Risk-free interest rate		0.78	%		1.39	%
Volatility		86.9	%		89.5	%
Expected term (years)		5			4.5
Weighted-average fair value of SARs granted	$	1.26		$	3.98

Activity regarding outstanding SARs for the nine months ended September 30, 2012 is as follows:

	All SARs Outstanding
				Weighted Average
	Shares			Exercise Price
SARs Outstanding as of December 31, 2011		787,690		$	5.63
SARs Granted		975,015		$	1.87
SARs Exercised		—			—
SARs Forfeited/Cancelled*		(130,070	)	$	4.75
SARs Outstanding as of September 30, 2012		1,632,635		$	3.46
SAR price range at September 30, 2012	$	1.34 – $8.50

* See disclosure below regarding forfeitures.

The aggregate intrinsic value of the unvested and vested outstanding SARs at September 30, 2012 and December 31, 2011 was $121,983 and $81,500, respectively. The aggregate intrinsic value is the total pretax value of in-the-money SARs, which is the difference between the fair value at the measurement date and the exercise price of each SAR.

A summary of the Company’s unvested SARs at September 30, 2012 and changes during the nine months ended September 30, 2012 is as follows:

				Weighted-Average Grant
	Shares			Date Fair Value Per Share
Unvested at December 31, 2011		583,740		$	3.64
Granted		975,015		$	1.26
Vested		(102,950	)	$	3.55
Forfeited*		(113,030	)	$	2.80
Unvested at September 30, 2012		1,342,775		$	1.99

* See disclosure below regarding forfeitures.

As of September 30, 2012, there was approximately $2.3 million of unrecognized compensation cost related to unvested SARs, which is expected to be recognized over a weighted-average period of 3.6 years.

Option/SAR Forfeitures

All of the forfeited options/SARs described in the charts set forth above resulted from the termination of the employment of the respective grantees and the resulting forfeiture of unvested and/or vested but unexercised options/SARs. Pursuant to the Plans, upon the termination of employment of a grantee, such grantee’s outstanding unexercised options/SARs are typically cancelled and deemed terminated as of the date of termination; provided, that if the termination is not for cause, all vested options/SARs generally remain outstanding for a period ranging from 30 to 90 days, and then expire to the extent not exercised.

Restricted Stock/RSU Forfeitures

All of the forfeited Restricted Stock and RSUs described in the charts set forth above resulted from the termination of the employment of the respective grantees and the resulting forfeiture of unvested Restricted Stock and RSUs. Pursuant to the award agreements governing the outstanding Restricted Stock and RSUs, upon a grantee’s termination of employment, such grantee’s outstanding unvested Restricted Stock and RSUs are typically forfeited, except in the event of disability or death, in which case all restrictions lapse.

Employee Stock Purchase Plan

Under the 2009 ESPP (until its suspension for the 2012 and 2013 plan years), eligible employees were provided the opportunity to purchase KID’s Common Stock at a discount. Pursuant to the 2009 ESPP, options were granted to participants as of the first trading day of each plan year, which is the calendar year, and were exercised as of the last trading day of each plan year, to purchase from KID the number of shares of Common Stock that could have been purchased at the relevant purchase price with the aggregate amount contributed by each participant. In each plan year (through 2011), an eligible employee could elect to participate in the 2009 ESPP by filing a payroll deduction authorization form for up to 10% (in whole percentages) of his or her compensation. No employee had the right to purchase Common Stock under the 2009 ESPP that had a fair value in excess of $25,000 in any plan year or the right to purchase more than 25,000 shares in any plan year. The purchase price was the lesser of 85% of the closing market price of KID’s Common Stock on either the first trading day or the last trading day of the plan year. If an employee did not elect to exercise his or her option, the total amount credited to his or her account during that plan year was returned to such employee without interest, and his or her option expired. At September 30, 2012, 6,663 shares were available for issuance under the 2009 ESPP. The Company has suspended the 2009 ESPP for fiscal years 2012 and 2013.

The fair value of each option granted under the 2009 ESPP during the nine months ended September 30, 2011 was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following assumptions:

	Nine Months Ended September 30, 2011
Dividend yield		0	%
Risk-free interest rate		0.29	%
Volatility		73.5	%
Expected term (years)		1.0

Expected volatilities are calculated based on the historical volatility of KID’s Common Stock. The risk-free interest rate is based on the U.S. Treasury yield with a term that is consistent with the expected life of the options. The expected life of options granted under the 2009 ESPP was one year, or the equivalent of the annual plan year.