Stock-based Compensation

6 Months Ended

Jul. 02, 2011

Stock-based Compensation

3. Stock-based Compensation

Total stock-based compensation expense was $4.8 million and $5.6 million for the three months ended July 2, 2011 and July 3, 2010, respectively, and was $10.5 million and $12.4 million for the six months ended July 2, 2011 and July 3, 2010, respectively.

During the first half of 2011, restricted shares and restricted stock units of our common stock were granted under the 2008 Omnibus Stock Incentive Plan to eligible employees with a vesting period of three to four years after issuance. Restricted share awards and restricted stock units are valued at market value on the date of grant and are typically expensed over the vesting period. Total compensation expense for restricted share awards and restricted stock units was $2.5 million and $2.8 million for the three months ended July 2, 2011 and July 3, 2010, respectively, and was $5.8 million and $6.5 million for the six months ended July 2, 2011 and July 3, 2010, respectively.

During the first half of 2011, option awards were granted under the 2008 Omnibus Stock Incentive Plan with an exercise price equal to the market price of our common stock on the date of grant. Option awards are typically expensed over the vesting period. Total compensation expense for stock option awards was $2.3 million and $2.8 million for the three months ended July 2, 2011 and July 3, 2010, respectively, and $4.7 million and $5.9 million for the six months ended July 2, 2011 and July 3, 2010, respectively.

We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:

	July 2, 2011			July 3, 2010
Expected stock price volatility		35.5	%		35.0	%
Expected life		5.5 yrs			5.5 yrs
Risk-free interest rate		2.12	%		2.25	%
Dividend yield		2.16	%		2.20	%

The weighted-average fair value of options granted during the second quarter of 2011 and 2010 were $10.89 and $9.80 per share, respectively.

These estimates require us to make assumptions based on historical results, observance of trends in our stock price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, stock-based compensation expense, as calculated and recorded under the accounting guidance could have been affected.

We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.