Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Stock-based Compensation

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Note 5 - Stock-based Compensation
9 Months Ended
Dec. 29, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 5 – Stock-based Compensation


The stockholders of the Company have approved the 2006 Omnibus Incentive Plan (the “Plan”), which is an incentive stock plan that is intended to attract and retain directors, officers and employees of the Company and to motivate and reward these individuals with long-term, equity-based incentive compensation, and which the Company believes will lead to the achievement of the Company’s overall goal of increasing stockholder value. Awards granted under the 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 Plan. The 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 Plan and determines the type, amount, duration and other terms of individual awards. At December 29, 2013, 385,702 shares of the Company’s common stock were available for future issuance under the 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 $131,000 and $242,000 of stock-based compensation expense during the three months ended December 29, 2013 and December 30, 2012, respectively, and recorded $487,000 and $530,000 of stock-based compensation expense during the nine months ended December 29, 2013 and December 30, 2012, respectively. The Company records the compensation expense related to 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 December 29, 2013.


Stock Options: The following table represents stock option activity for the nine-month periods ended December 29, 2013 and December 30, 2012:


   

Nine-Month Period Ended December 29, 2013

   

Nine-Month Period Ended December 30, 2012

 
   

Weighted-Average

   

Number of Options

   

Weighted-Average

   

Number of Options

 
   

Exercise Price

   

Outstanding

   

Exercise Price

   

Outstanding

 

Outstanding at Beginning of Period

  $ 5.23       145,000     $ 3.57       573,000  

Granted

    6.14       100,000       5.42       110,000  

Exercised

    5.12       (40,000 )     3.46       (521,750 )

Expired

    -       -       0.71       (1,250 )

Outstanding at End of Period

    5.70       205,000       5.23       160,000  

Exercisable at End of Period

    5.14       55,000       -       -  

The total intrinsic value of the stock options exercised during the three-month periods ended December 29, 2013 and December 30, 2012 was $23,000 and $443,000, respectively, and was $60,000 and $1.2 million during the nine-month periods ended December 29, 2013 and December 30, 2012, respectively. As of December 29, 2013, the intrinsic value of the outstanding and exercisable stock options was $407,000 and $140,000, respectively.


The Company received no cash from the exercise of stock options during the nine months ended December 29, 2013 and received cash in the amount of $98,000 from the exercise of stock options during the nine months ended December 30, 2012. Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company remitted cash of $24,000 and $437,000 to satisfy the required income tax withholding amounts from “cashless” option exercises during the nine-month periods ended December 29, 2013 and December 30, 2012, respectively. Thus, the Company’s net outflow of cash upon the exercise of stock options was $24,000 and $339,000 during the nine-month periods ended December 29, 2013 and December 30, 2012, 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 nine-month periods ended December 29, 2013 and December 30, 2012, which options vest over a two-year service period.


   

Nine-Month Periods Ended

 
   

December 29, 2013

   

December 30, 2012

 

Options issued

    100,000       110,000  

Grant Date

 

June 14, 2013

   

June 13, 2012

 

Dividend yield

    5.21 %     5.90 %

Expected volatility

    35.00 %     65.00 %

Risk free interest rate

    0.49 %     0.55 %

Contractual term (years)

    10.00       10.00  

Expected term (years)

    3.00       4.00  

Forfeiture rate

    5.00 %     5.00 %

Exercise price (grant-date closing price)

  $ 6.14     $ 5.42  

Fair value

  $ 0.98     $ 1.84  

For the three and nine-month periods ended December 29, 2013, the Company recognized compensation expense associated with stock options as follows (in thousands):


   

Three-Month Period

   

Nine-Month Period

 
   

Cost of

   

Marketing &

           

Cost of

   

Marketing &

         
   

Products

   

Administrative

   

Total

   

Products

   

Administrative

   

Total

 

Options Granted in Fiscal Year

 

Sold

   

Expenses

   

Expense

   

Sold

   

Expenses

   

Expense

 

2012

    -       -       -       14       11       25  

2013

    11       11       22       35       35       70  

2014

    6       6       12       13       13       26  
                                                 

Total stock option compensation

  $ 17     $ 17     $ 34     $ 62     $ 59     $ 121  

For the three and nine-month periods ended December 30, 2012, the Company recognized compensation expense associated with stock options as follows (in thousands):


   

Three-Month Period

   

Nine-Month Period

 
   

Cost of

   

Marketing &

           

Cost of

   

Marketing &

         
   

Products

   

Administrative

   

Total

   

Products

   

Administrative

   

Total

 

Options Granted in Fiscal Year

 

Sold

   

Expenses

   

Expense

   

Sold

   

Expenses

   

Expense

 

2011

  $ -     $ -     $ -     $ 14     $ 13     $ 27  

2012

    12       12       24       41       41       82  

2013

    11       13       24       24       28       52  
                                                 

Total stock option compensation

  $ 23     $ 25     $ 48     $ 79     $ 82     $ 161  

As of December 29, 2013, total unrecognized stock option compensation expense amounted to $119,000, which will be recognized as the underlying stock options vest over a weighted-average period of 9.5 months. 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 Granted to Directors: The Board granted the following shares of non-vested stock to its non-employee directors:


Number

 

Weighted-Average

 

Three-Month

Of Shares

 

Fair Value per Share

 

Period Ended

28,000

 

$6.67  

 

    September 29, 2013

42,000

 

5.62

 

    September 30, 2012

30,000

 

4.44

 

    October 2, 2011

30,000

 

4.36

 

    September 26, 2010


These shares vest over a two-year service period. The fair value of the non-vested stock granted to the Company’s non-employee directors was based on the closing price of the Company’s common stock on the date of the grant.


Non-vested Stock Granted to Employees: During the three-month period ended June 27, 2010, the Board awarded 345,000 shares of non-vested stock to certain employees in a series of grants, each of which will vest only if (i) 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 and (ii) the respective employees remain employed through July 29, 2015. The Company, with the assistance of an independent third party, determined that the aggregate grant date fair value of the awards amounted to $1.2 million.


On November 5, 2013 and November 30, 2012, the Board approved amendments to the grant subject to the $5.00 per share closing price condition that had been awarded to E. Randall Chestnut, Chairman, Chief Executive Officer and President. With the closing price condition having been met for this award, the original grant of 75,000 shares was amended to provide for the immediate vesting of 13,000 shares on November 5, 2013 and 62,000 shares on November 30, 2012. The vesting of these awards was accelerated in order to preserve the deductibility of the associated compensation expense by the Company for income tax purposes. As a result of the acceleration of the vesting, the Company recognized the remaining compensation expense associated with the 13,000 and 62,000 shares vested of $14,000 and $99,000, respectively, during the three-month periods ended December 29, 2013 and December 30, 2012, respectively. These amounts would otherwise have been recognized by the Company ratably through July 29, 2015. To satisfy the income tax withholding obligations that arose from the vesting of the shares, Mr. Chestnut surrendered to the Company 6,234 shares on November 5, 2013 and 26,319 shares on November 30, 2012, and the Company paid $47,000 and $153,000, respectively, to the appropriate taxing authorities on his behalf at such times.


Performance Bonus Plan:  In July 2012, the Company implemented a performance bonus plan for certain executive officers that provided for awards of cash or shares of common stock, or a combination thereof, in the discretion of the Compensation Committee of the Board, in the event that the aggregate average market value of the common stock during the relevant fiscal year, plus the amount of cash dividends paid in respect of the common stock during such period, increases.  In September 2013, the performance bonus plan was amended to eliminate the Compensation Committee’s discretion to award cash, unless and to the extent that insufficient shares of common stock were available for issuance from the Company’s 2006 Omnibus Incentive Plan.


In connection with this performance bonus plan, during the three-month period ended September 29, 2013, the Company, in respect of fiscal year 2013, granted to certain executive officers 17,048 shares of common stock with a value of $93,000 and a cash award of $258,000.  Of the total compensation expense of $351,000, $155,000 was recognized during fiscal year 2013 and $196,000 was recognized as compensation expense during the six-month period ended September 29, 2013.  Although there are restrictions as to the subsequent transfer of the shares of stock awarded, ownership in the stock was vested upon issuance.


The performance bonus plan, as amended in September 2013, provides that any shares of common stock that may be awarded in the future will vest over a two-year service period. This revision to the performance bonus plan, along with the requirement that awards now be made solely in shares of common stock, will provide that the compensation expense associated with performance bonus plan awards will be recognized ratably over a three-year period – the fiscal year in which the award is earned, plus the two-year vesting period. With respect to awards which may be earned pursuant to the performance bonus plan for fiscal year 2014, the Company has recognized compensation expense in the amount of $240,000 during the nine months ended December 29, 2013.


For the three and nine-month periods ended December 29, 2013, the Company recognized compensation expense associated with stock grants, which is included in other marketing and administrative expenses in the accompanying condensed consolidated statements of income, as follows (in thousands):


   

Three-Month Period

   

Nine-Month Period

 
           

Non-employee

   

Total

           

Non-employee

   

Total

 

Stock Granted in Fiscal Year

 

Employees

   

Directors

   

Expense

   

Employees

   

Directors

   

Expense

 

2011

  $ 55     $ -     $ 55     $ 141     $ -     $ 141  

2012

    -       -       -       -       22       22  

2013

    -       19       19       -       71       71  

2014

    -       23       23       93       39       132  
                                                 

Total stock grant compensation

  $ 55     $ 42     $ 97     $ 234     $ 132     $ 366  

For the three and nine-month periods ended December 30, 2012, the Company recognized compensation expense associated with stock grants, which is included in other marketing and administrative expenses in the accompanying condensed consolidated statements of income, as follows (in thousands):


   

Three-Month Period

   

Nine-Month Period

 
           

Non-employee

   

Total

           

Non-employee

   

Total

 

Stock Granted in Fiscal Year

 

Employees

   

Directors

   

Expense

   

Employees

   

Directors

   

Expense

 

2011

  $ 148     $ -     $ 148     $ 252     $ 18     $ 270  

2012

    -       17       17       -       50       50  

2013

    -       29       29       -       49       49  
                                                 

Total stock grant compensation

  $ 148     $ 46     $ 194     $ 252     $ 117     $ 369  

As of December 29, 2013, unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $453,000, which will be recognized over the respective vesting terms associated with each of the blocks of non-vested stock grants indicated above, such grants having an aggregate weighted-average vesting term of 1.5 years. 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.