Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Stock-based Compensation

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Note 5 - Stock-based Compensation
 3 Months Ended
Jul. 03, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Note 5 – Stock-based Compensation

The Company has two incentive stock plans, the 1995 Stock Option Plan (“1995 Plan”) and the 2006 Omnibus Incentive Plan (“2006 Plan”).  The Company granted non-qualified stock options to employees and non-employee directors from the 1995 Plan through the fiscal year ended April 2, 2006.  In conjunction with the approval of the 2006 Plan by the Company’s stockholders at its Annual Meeting in August 2006, options may no longer be issued from the 1995 Plan.

The 2006 Plan is intended to attract and retain directors, officers and employees of the Company and to motivate these persons to achieve performance objectives related to the Company’s overall goal of increasing stockholder value.  The principal reason for adopting the 2006 Plan was to ensure that the Company has a mechanism for long-term, equity-based incentive compensation to directors, officers and employees.  Awards granted under the 2006 Plan may be in the form of qualified or non-qualified stock options, restricted stock, stock appreciation rights, long-term incentive compensation units consisting of a combination of cash and shares of the Company’s common stock, or any combination thereof within the limitations set forth in the 2006 Plan.  The 2006 Plan is administered by the compensation committee of the Company’s Board of Directors (the “Board”), which selects eligible employees and non-employee directors to participate in the 2006 Plan and determines the type, amount, duration and other terms of individual awards.  At July 3, 2011, 237,000 shares of the Company’s common stock were available for future issuance under the 2006 Plan.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement.  The Company recorded $137,000 and $163,000 of stock-based compensation expense during the three-months ended July 3, 2011 and June 27, 2010, respectively.  The Company records the compensation expense associated with stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals.  No stock-based compensation costs have been capitalized as part of the cost of an asset as of July 3, 2011.

Stock Options: The following table represents stock option activity for the three-month periods ended July 3, 2011 and June 27, 2010:

   
Three-Month Period Ended July 3, 2011
   
Three-Month Period Ended June 27, 2010
 
   
Weighted-Average
   
Number of Options
   
Weighted-Average
   
Number of Options
 
   
Exercise Price
   
Outstanding
   
Exercise Price
   
Outstanding
 
Outstanding at Beginning of Period
  $ 3.31       747,000     $ 2.94       825,832  
Granted
    4.81       100,000       4.23       110,000  
Exercised
    (3.24 )     (193,500 )     (0.77 )     (85,332 )
Outstanding at End of Period
    3.56       653,500       3.32       850,500  
Exercisable at End of Period
    3.28       423,500       3.24       570,500  

The total intrinsic value of the stock options exercised during the three months ended July 3, 2011 and June 27, 2010 was $332,000 and $271,000, respectively.  As of July 3, 2011, the intrinsic value of the outstanding and exercisable stock options was $897,000 and $697,000, respectively.

To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value.  The following table sets forth the assumptions used to determine the fair value, and the resulting grant-date fair value per option, of the non-qualified stock options which were awarded to certain employees during the three-month periods ended July 3, 2011 and June 27, 2010, which options vest over a two-year period, assuming continued service.

   
Three-Month Periods Ended
 
   
July 3, 2011
   
June 27, 2010
 
Options issued
    100,000       110,000  
Grant Date
 
June 10, 2011
   
June 23, 2010
 
Dividend yield
    2.49 %     1.89 %
Expected volatility
    60.00 %     55.00 %
Risk free interest rate
    1.84 %     2.17 %
Expected life in years
    5.75       5.75  
Forfeiture rate
    5.00 %     5.00 %
Exercise price (grant-date closing price)
  $ 4.81     $ 4.23  
Fair value
  $ 2.16     $ 1.88  

Because the Company’s historical stock option exercise experience did not provide a reasonable basis upon which to estimate the expected life of the stock options granted during each of the three months ended July 3, 2011 and June 27, 2010, the Company has elected to use the simplified method to estimate the expected life of the stock options granted, as allowed by SEC Staff Accounting Bulletin No. 107 and the continued acceptance of the simplified method indicated in SEC Staff Accounting Bulletin No. 110.

For the three-month periods ended July 3, 2011 and June 27, 2010, the Company recognized compensation expense associated with stock options as follows (in thousands):

   
Three-month Period Ended July 3, 2011
   
Three-month Period Ended June 27, 2010
 
   
Cost of
   
Marketing &
         
Cost of
   
Marketing &
       
   
Products
   
Administrative
   
Total
   
Products
   
Administrative
   
Total
 
Options Granted in Fiscal Year
 
Sold
   
Expenses
   
Expense
   
Sold
   
Expenses
   
Expense
 
2009
  $ -     $ -     $ -     $ 13     $ 38     $ 51  
2010
    9       19       28       8       21       29  
2011
    14       15       29       -       1       1  
2012
    3       3       6       -       -       -  
                                                 
Total stock option compensation
  $ 26     $ 37     $ 63     $ 21     $ 60     $ 81  

As of July 3, 2011, total unrecognized stock option compensation expense amounted to $322,000, which will be recognized as the underlying stock options vest over a period of up to two years.  The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock: The fair value of non-vested stock granted is determined based on the number of shares granted multiplied by the closing price of the Company’s common stock on the date of the grant.

The Board granted 30,000 shares of non-vested stock to its non-employee directors during each of the quarters ended September 26, 2010, September 27, 2009 and September 28, 2008 with a weighted-average fair value of $4.36, $3.02 and $3.87, respectively, as of the date of each of the grants.  These shares vest over a two-year period, assuming continued service.

The Board awarded 345,000 shares of non-vested stock to certain employees as of June 23, 2010 (the “Grant Date”) in a series of grants which will vest only if the closing price of the Company’s common stock is at or above certain target levels for any ten trading days out of any period of 30 consecutive trading days (the “Market Condition”), assuming continued service through the date the Market Condition is achieved.

As of July 29, 2010 (the “Modification Date”), the Company amended these non-vested stock grants to require as a condition to vesting a five-year period of continuous service after the Modification Date in addition to the achievement of the Market Condition.  The amendment of these non-vested stock grants will be accounted for as a modification.  As such, the initial aggregate Grant Date fair value and the incremental cost resulting from the modification, if any, will be recognized as compensation expense over the vesting term of the modified awards.  The Company, with the assistance of an independent third party, has determined that the aggregate Grant Date fair value of the original awards amounted to $1.2 million, and has further determined that there is no incremental cost resulting from the modification.  Therefore, the aggregate Grant Date fair value will be recognized as compensation expense over a period beginning on the Grant Date and ending on the fifth anniversary of the Modification Date.

For the three-month periods ended July 3, 2011 and June 27, 2010, the Company recognized compensation expense associated with non-vested stock grants, which is included in marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

   
Three-month Period Ended July 3, 2011
   
Three-month Period Ended June 27, 2010
 
         
Non-employee
   
Total
         
Non-employee
   
Total
 
Stock Granted in Fiscal Year
 
Employees
   
Directors
   
Expense
   
Employees
   
Directors
   
Expense
 
2007
  $ -     $ -     $ -     $ 42     $ -     $ 42  
2009
    -       -       -       -       15       15  
2010
    -       6       6       -       25       25  
2011
    52       16       68       -       -       -  
                                                 
   Total stock grant compensation
  $ 52     $ 22     $ 74     $ 42     $ 40     $ 82  

As of July 3, 2011, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $923,000, which will be recognized over the respective vesting terms associated with each block of grants as indicated above.  The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has received non-vested stock grants that remain non-vested as of such individual’s separation date.