Note 9 – Stock-based Compensation

The stockholders of the Company 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 those individuals to achieve the overall goal of increasing stockholder value. The Plan was adopted to create a mechanism for long-term, equity-based incentive compensation for its non-employee directors and certain employees. 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 Board, which selects eligible employees and non-employee directors to participate in the Plan and determines the type, amount, duration and other terms of such awards. At March 30, 2014, 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 $604,000 and $652,000 of stock-based compensation during fiscal years 2014 and 2013, 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 were capitalized as part of the cost of an asset as of March 30, 2014.

Stock Options: The following table represents stock option activity for fiscal years 2014 and 2013: 

The total intrinsic value of the stock options exercised during fiscal years 2014 and 2013 was $126,000 and $1.2 million, respectively. As of March 30, 2014, the intrinsic value of the outstanding and exercisable stock options was $383,000 and $94,000, respectively.

The Company received no cash from the exercise of stock options during fiscal year 2014 and received cash in the amount of $98,000 from the exercise of stock options during fiscal year 2013. 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 used cash of $49,000 and $437,000 to remit the required income tax withholding amounts from “cashless” option exercises during fiscal years 2014 and 2013, respectively. Thus, the Company’s net outflow of cash upon the exercise of stock options was $49,000 and $339,000 during fiscal years 2014 and 2013, 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 that fair value, and the resulting grant-date fair value per option, of the non-qualified stock options which were awarded to certain employees during fiscal years 2014 and 2013, which options vest over a two-year period, assuming continued service.

For the fiscal years ended March 30, 2014 and March 31, 2013, the Company recognized compensation expense associated with stock options as follows (in thousands):

A summary of stock options outstanding and exercisable at March 30, 2014 is as follows:

As of March 30, 2014, total unrecognized stock-option compensation costs amounted to $86,000, which will be recognized as the underlying stock options vest over a weighted-average period of 6.5 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 employee or director who has stock options that are unvested as of such individual’s separation date.

Non-vested Stock Granted to Non-Employee Directors: The Board granted the following shares of non-vested stock to the Company’s non-employee directors:

These shares vest over a two-year period, assuming continued service. The fair value of 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 each 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 fiscal year 2014, 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, $196,000 and $155,000 were recognized during fiscal years 2014 and 2013, respectively. Although there are restrictions as to the subsequent transfer of the shares of stock awarded, ownership in the stock was vested upon issuance. To satisfy the income tax withholding obligations that arose from the issuance of the shares, the employees surrendered 8,549 shares to the Company and the Company paid $54,000 to the appropriate taxing authorities on their behalf.

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. The Company recognized compensation expense in the amount of $354,000 during fiscal year 2014 in respect of awards earned pursuant to the performance bonus plan for fiscal year 2014.

For the fiscal year ended March 30, 2014, the Company recognized compensation expense associated with non-vested stock grants, which is included in other marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

For the fiscal year ended March 31, 2013, the Company recognized compensation expense associated with non-vested stock grants, which is included in other marketing and administrative expenses in the accompanying consolidated statements of income, as follows (in thousands):

As of March 30, 2014, total unrecognized compensation expense related to the Company’s non-vested stock grants was $369,000, which will be recognized over the remaining portion of the respective vesting periods associated with each block of grants, such grants having a weighted average vesting term of 1.26 years. The amount of future compensation expense related to 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 unvested grants as of such individual’s separation date.