Stock-Based Compensation

6 Months Ended

Jul. 02, 2011

Share-Based Compensation

Stock-Based Compensation

9. Stock-based compensation

The Company recognizes compensation expense for all share-based payments granted based on the grant-date fair value estimated in accordance with the provisions of the FASB Accounting Standards Codification topic ("ASC") 718-10. Compensation expense is recognized on a straight-line basis over the options' or awards' estimated lives for fixed awards with ratable vesting provisions.

Under the Company's 2007 Incentive Plan ("2007 Plan"), which was approved by the Company's stockholders on May 16, 2007, the Company reserved up to a maximum of 3,200 shares of common stock for issuance upon the grant or exercise of stock options, restricted stock, restricted stock units ("RSUs") and other types of awards, to directors and key employees through 2017. Option awards are granted with an exercise price equal to the market price of the Company's common stock on the date of the grant and generally vest between three and five years with a 10-year contractual term. Restricted stock and RSUs are granted with a price equal to the market price of the Company's common stock on the date of the grant and generally vest between three and five years.

The Company granted 76 and 40 options to employees at a weighted-average grant-date fair value of $25.39 and $19.10 per share for the six months ended July 2, 2011 and July 3, 2010, respectively. The Company recognized stock-based compensation costs related to stock options of $450 ($285 net of taxes) and $549 ($348 net of taxes) for the three months ended July 2, 2011 and July 3, 2010, respectively, and $1,009 ($639 net of taxes) and $1,324 ($839 net of taxes) for the six months ended July 2, 2011 and July 3, 2010, respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for stock options granted to employees and outside directors, net of estimated forfeitures, was $2,835 as of July 2, 2011, and will be recognized as expense over a weighted-average period of approximately 1.8 years.

The fair value of the option award is estimated on the date of grant using the Black-Scholes-Merton valuation model. Expected volatility is based on the historical volatility of the Company's common stock. The Company uses historical data to estimate option exercise and forfeiture rates within the valuation model.

The Company granted 196 and 89 RSUs at a weighted-average grant-date fair value of $57.35 and $46.94 per unit for the six months ended July 2, 2011 and July 3, 2010, respectively. The Company recognized stock-based compensation costs related to the issuance of RSUs of $1,708 ($1,082 net of taxes) and $1,024 ($648 net of taxes) for the three months ended July 2, 2011 and July 3, 2010, respectively, and $4,979 ($3,154 net of taxes) and $2,075 ($1,315 net of taxes) for the six months ended July 2, 2011 and July 3, 2010, respectively, which has been allocated to selling, general and administrative expenses. Pre-tax unrecognized compensation expense for unvested RSUs granted to employees, net of estimated forfeitures, was $14,596 as of July 2, 2011, and will be recognized as expense over a weighted-average period of approximately 3.8 years.

The Company did not grant any restricted stock awards for the six months ended July 2, 2011. Compensation expense for restricted stock awards for the six months ended July 2, 2011 and July 3, 2010, respectively, was not significant.