Share-Based Compensation

9 Months Ended

Jul. 31, 2011

Share-Based Compensation [Abstract]

SHARE-BASED COMPENSATION

NOTE 6 — SHARE-BASED COMPENSATION

Our 2003 Long-Term Stock Incentive Plan (“Incentive Plan”) is an equity-based compensation plan that allows us to grant a variety of types of awards, including stock options, restricted stock, restricted stock units, stock appreciation rights, performance share awards, phantom stock awards and cash awards. As of July 31, 2011 and August 1, 2010, and for all periods presented, our share-based awards under this plan have consisted of restricted stock grants and stock option grants, none of which can be settled through cash payments. Both our stock options and restricted stock awards are subject only to vesting requirements based on continued employment at the end of a specified time period and typically vest over four years or earlier upon death, disability or a change of control. However, our annual restricted stock awards also vest upon retirement and, only in the case of certain special one-time restricted stock awards, a portion vest on termination without cause or for good reason, as defined by the agreements governing such awards.

The fair value of each option award is estimated as of the date of grant or the remeasurement date using a Black-Scholes-Merton option pricing formula. Expected volatility is based on normalized historical volatility of our stock over a preceding period commensurate with the expected term of the option and adjusted to exclude the increased volatility associated with the refinancing the Company experienced in fiscal 2009 because this volatility is not relevant to the expected future volatility of the stock. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we do not currently pay dividends on our Common Stock and have no current plans to do so in the future. We have estimated a forfeiture rate of 10% for our non-officers and 0% for our officers in our calculation of share-based compensation expense for the three and nine month periods ended July 31, 2011 and August 1, 2010. These estimates are based on historical forfeiture behavior exhibited by our employees.

The weighted average assumptions for the equity awards granted on December 14, 2010 and December 11, 2009 are noted in the following table:

	December 14, 2010			December 11, 2009
Expected volatility		51.53	%		46.05	%
Expected term (in years)		5.75			5.75
Risk-free interest rate		1.21	%		2.44	%

Prior to March 5, 2010, the Company did not have sufficient common shares available to settle the restricted stock and stock option awards, and thus, we classified a portion of the awards as liability awards in accordance with ASC Subtopic 718-10, Compensation- Stock Compensation (“ASC 718-10”). ASC 718-10 requires that liability awards be remeasured at fair value at each reporting date with changes in fair value recognized in earnings. On March 5, 2010, the Company effected a reverse stock split at an exchange ratio of 1-for-5 (the “Reverse Stock Split”) which caused the shares to become available and resulted in all restricted stock and stock option awards being classified as equity awards. As such, on March 5, 2010, all liability awards were reclassified to equity awards and remeasured using a valuation date of March 5, 2010.

The weighted average assumptions for the liability awards at the December 11, 2009 grant date and the subsequent reclassification to equity awards remeasured on March 5, 2010 are noted in the following table:

	March 5, 2010			December 11, 2009
Expected volatility		47.01	%		46.05	%
Expected term (in years)		5.52			5.75
Risk-free interest rate		2.49	%		2.44	%

During the nine month period ended July 31, 2011 and August 1, 2010, we granted 121,669 and 1,781,729 stock options, respectively, and the weighted average grant-date fair value of options granted was $5.78 and $4.29, respectively.

The fair value of restricted stock awards classified as equity awards is based on the Company’s stock price as of the date of grant. During the nine months ended July 31, 2011 and August 1, 2010, we granted restricted stock awards with a fair value of $6.2 million or 515,053 shares and $13.7 million or 1,498,718 shares, respectively. The total recurring pre-tax share-based compensation cost that has been recognized in results of operations was $1.7 million and $1.4 million for the three months ended July 31, 2011 and August 1, 2010, respectively, and $5.1 million and $3.6 million for the nine months ended July 31, 2011 and August 1, 2010, respectively. Of these amounts, $1.7 million and $1.4 million for the three months ended July 31, 2011 and August 1, 2010, respectively, and $4.9 million and $3.5 million for the nine months ended July 31, 2011 and August 1, 2010, respectively, were included in engineering, selling, general and administrative expenses, with the remaining costs in each period in cost of sales. As of both July 31, 2011 and August 1, 2010, we do not have any amounts capitalized for share-based compensation cost in inventory or similar assets. The total income tax benefit recognized in results of operations for share-based compensation arrangements was $0.7 million and $0.5 million for the three months ended July 31, 2011 and August 1, 2010, respectively, and $2.0 million and $1.4 million for the nine months ended July 31, 2011 and August 1, 2010, respectively. As of July 31, 2011 and August 1, 2010, there was approximately $19.9 million and $19.6 million, respectively, of total unrecognized compensation cost related to share-based compensation arrangements and this cost is expected to be recognized over a weighted-average remaining period of 3.0 years and 3.8 years, respectively.

There were no options exercised during the first nine months of each of fiscal 2011 and fiscal 2010.