Note 4 - Stock-Based Compensation

Stock-based compensation includes stock options, cash-settled stock appreciation rights (SARs) and restricted stock awards. Additionally, we recognize stock-based compensation expense for the discount on shares sold to employees through our employee stock purchase plan. Stock-based compensation expense for the employee stock purchase plan was $12,000 before the income tax benefit of $5,000 and $22,000 before the income tax benefit of $8,000 for the thirteen and twenty-six weeks ended August 3, 2013, respectively. For the thirteen and twenty-six weeks ended July 28, 2012, compensation expense for the employee stock purchase plan was $9,000 before the income tax benefit of $3,000 and $21,000 before the income tax benefit of $8,000, respectively.

The following table summarizes the share transactions for our restricted stock awards:

	Number of Shares			Weighted- Average Grant Date Fair Value
Restricted stock at February 2, 2013		499,280		$	18.84
Granted		220,800			20.80
Vested		(132,000	)		17.67
Forfeited or expired		(39,155	)		19.34
Restricted stock at August 3, 2013		548,925		$	19.88

The weighted-average grant date fair value of stock awards granted during the twenty-six week periods ended August 3, 2013 and July 28, 2012 was $20.80 and $17.73, respectively. The total fair value at grant date of previously non-vested stock awards that vested during the first six months of fiscal 2013 was $2.3 million. The total fair value at grant date of previously non-vested stock awards that vested during the first six months of fiscal 2012 was $40,000. Of the 39,155 restricted stock awards that were forfeited or that expired during the first six months of fiscal 2013, 33,905 shares were restricted stock awards that expired unvested, as the performance measure was not achieved. These awards represented the third tier of the restricted stock granted on March 13, 2007 that expired in the first quarter of fiscal 2013.

The following section summarizes information regarding stock-based compensation expense recognized for restricted stock awards:

(In thousands)	Thirteen Weeks Ended August 3, 2013		Thirteen Weeks Ended July 28, 2012⁽¹⁾		Twenty-six Weeks Ended August 3, 2013		Twenty-six Weeks Ended July 28, 2012⁽¹⁾
Stock-based compensation expense before the recognized income tax benefit	$	775	$	2,108	$	1,706	$	2,718
Income tax benefit	$	300	$	813	$	646	$	1,043

⁽¹⁾

Income tax benefit was calculated using an adjusted effective tax rate. The adjusted rate removes the tax effects from the favorable resolution of certain tax positions.

As of August 3, 2013, approximately $7.3 million of unrecognized compensation expense remained related to both our performance-based and service-based restricted stock awards. The cost is expected to be recognized over a weighted average period of approximately 2.3 years. This incorporates our current assumptions with respect to the estimated requisite service period required to achieve the designated performance conditions for performance-based stock awards.

During the second quarter of fiscal 2012, stock-based compensation expense was increased by $789,000 due to a cumulative catch-up in expense for awards that management then determined were probable to vest based on our improved financial outlook.

The following table summarizes the SARs activity:

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at February 2, 2013		123,750		$	17.17
Granted		0			0.00
Forfeited		(2,500	)		17.17
Exercised		(33,249	)		17.17
Outstanding at August 3, 2013		88,001		$	17.17		3.49

Exercisable at August 3, 2013		7,751		$	17.17		3.49

In accordance with current authoritative guidance, our cash-settled SARs are classified as Other liabilities on the Condensed Consolidated Balance Sheets. The fair value of these liability awards are remeasured, using a trinomial lattice model, at each reporting period until the date of settlement. Increases or decreases in stock-based compensation expense are recognized over the vesting period, or immediately for vested awards. The weighted-average fair value of outstanding, non-vested SAR awards was $4.87 as of August 3, 2013.

The fair value was estimated using a trinomial lattice model with the following assumptions:

	August 3, 2013
Risk free interest rate yield curve		0.03% - 1.36	%
Expected dividend yield		1.0	%
Expected volatility		54.25	%
Maximum life		3.49 Years
Exercise multiple		1.38
Maximum payout	$	6.67
Employee exit rate		2.2% - 9.0	%

The risk free interest rate was based on the U.S. Treasury yield curve in effect at the end of the reporting period. The expected dividend yield was based on our quarterly cash dividends in fiscal 2012, with the assumption that quarterly dividends would continue at that rate. Expected volatility was based on the historical volatility of our stock. The exercise multiple and employee exit rate are based on historical option data.

The following table summarizes information regarding stock-based compensation expense recognized for SARs:

(In thousands)	Thirteen Weeks Ended August 3, 2013		Thirteen Weeks Ended July 28, 2012⁽¹⁾		Twenty-six Weeks Ended August 3, 2013		Twenty-six Weeks Ended July 28, 2012⁽¹⁾
Stock-based compensation expense before the recognized income tax benefit	$	143	$	80	$	159	$	149
Income tax benefit	$	55	$	31	$	60	$	57

⁽¹⁾

Income tax benefit was calculated using an adjusted effective tax rate. The adjusted rate removes the tax effects from the favorable resolution of certain tax positions.

As of August 3, 2013, approximately $157,000 in unrecognized compensation expense remained related to non-vested SARs. This expense is expected to be recognized over a weighted-average period of approximately 1.0 year.