Annual report pursuant to Section 13 and 15(d)

Note 10 - Stock-based Compensation

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Note 10 - Stock-based Compensation
 12 Months Ended
Apr. 01, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Note 10 – Stock-based Compensation

The Company has two incentive stock plans, the 1995 Stock Option Plan (the “1995 Plan”) and the 2006 Omnibus Incentive Plan (the “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 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 individuals 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 its non-employee directors and to certain 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 Board, which determines which employees and non-employee directors will be awarded grants under the 2006 Plan and determines the type, amount and duration of such awards.  At April 1, 2012, 209,500 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 a stock-based compensation to be accounted for using a fair-value-based measurement.  The Company recorded $545,000 and $732,000 of stock-based compensation during fiscal years 2012 and 2011, 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 April 1, 2012.

Stock Options: The following table represents stock option activity for fiscal years 2012 and 2011:

   
Fiscal Year Ended April 1, 2012
   
Fiscal Year Ended April 3, 2011
 
   
Weighted-Average
Exercise Price
   
Number of Options
Outstanding
   
Weighted-Average
Exercise Price
   
Number of Options
Outstanding
 
Outstanding at Beginning of Year
  $ 3.31       747,000     $ 2.94       825,832  
Granted
    4.81       100,000       4.23       110,000  
Exercised
    3.30       (274,000 )     2.07       (171,832 )
Forfeited
    -       -       3.86       (17,000 )
Outstanding at End of Year
    3.57       573,000       3.31       747,000  
Exercisable at End of Year
    3.20       423,000       3.19       567,000  

The total intrinsic value of the stock options exercised during fiscal years 2012 and 2011 was $399,000 and $418,000, respectively.  As of April 1, 2012, the intrinsic value of the outstanding and exercisable stock options was $1.0 million and $851,000, respectively.

The Company uses the Black-Scholes-Merton valuation formula to determine the estimated fair value of stock options granted.  The following table sets forth the assumptions used and the resulting grant-date fair value of the non-qualified stock options granted to certain employees during fiscal years 2012 and 2011, which options vest over a two-year period, assuming continued service.

   
2012
   
2011
 
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 fiscal years 2012 and 2011, 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 fiscal years ended April 1, 2012 and April 3, 2011, the Company recognized compensation expense associated with stock options as follows (in thousands):

   
Fiscal Year Ended April 1, 2012
 
Options Granted in Fiscal Year
 
Cost of
Products
Sold
   
Marketing &
Administrative
Expenses
   
Total
Expense
 
2010
  $ 15     $ 32     $ 47  
2011
    47       47       94  
2012
    41       41       82  
                         
Total stock option compensation
  $ 103     $ 120     $ 223  

   
Fiscal Year Ended April 3, 2011
 
Options Granted in Fiscal Year
 
Cost of
Products
Sold
   
Marketing &
Administrative
Expenses
   
Total
Expense
 
2009
  $ 13     $ 38     $ 51  
2010
    37       86       123  
2011
    34       34       68  
                         
Total stock option compensation
  $ 84     $ 158     $ 242  

A summary of stock options outstanding and exercisable at April 1, 2012 is as follows:

Range of
Exercise
Prices
   
Number
of Options
Outstanding
   
Weighted
Avg. Remaining
Contractual
Life in Years
   
Weighted
Avg. Exercise
Price of
Options
Outstanding
   
Number
of Shares
Exercisable
   
Weighted
Avg. Exercise
Price of
Options
Exercisable
 
$ 0.65 - $0.71       43,500       0.86     $ 0.69       43,500     $ 0.69  
$ 3.02 - $3.15       185,000       6.32     $ 3.07       185,000     $ 3.07  
$ 3.58       85,000       6.19     $ 3.58       85,000     $ 3.58  
$ 4.08 - $4.23       159,500       7.16     $ 4.17       109,500     $ 4.15  
$ 4.81       100,000       9.19     $ 4.81       -     $ -  
          573,000       6.62     $ 3.57       423,000     $ 3.20  

As of April 1, 2012, total unrecognized stock-option compensation costs amounted to $162,000, 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 employee or director who has 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 grant.

The Board granted 30,000 shares of non-vested stock to its non-employee directors during each of the three-month periods ended October 2, 2011, September 26, 2010, September 27, 2009 and September 28, 2008 with a weighted-average fair value of $4.44, $4.36, $3.02 and $3.87, respectively, as of the date of the stock grants.  These shares vest over a two-year period, assuming continued service.

In August 2011, 22,500 shares vested that had been granted to non-employee directors, having an aggregate value of $103,000, and 2,500 shares were forfeited upon the departure from the Board of a non-employee director prior to the vesting of his shares.

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 would have originally vested 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 is being 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, 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 fiscal years ended April 1, 2012 and April 3, 2011, 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):

   
Fiscal Year Ended April 1, 2012
 
Stock Granted in Fiscal Year
 
Employees
   
Non-employee
Directors
   
Total
Expense
 
2010
  $ -     $ 11     $ 11  
2011
    208       58       266  
2012
    -       45       45  
                         
Total stock grant compensation
  $ 208     $ 114     $ 322  

   
Fiscal Year Ended April 3, 2011
 
Stock Granted in Fiscal Year
 
Employees
   
Non-employee
Directors
   
Total
Expense
 
2007
  $ 70     $ -     $ 70  
2009
    -       19       19  
2010
    -       43       43  
2011
    314       44       358  
                         
Total stock grant compensation
  $ 384     $ 106     $ 490  

At April 1, 2012, the amount of unrecognized compensation expense related to non-vested stock grants amounted to $801,000, which will be recognized over the remaining portion of the respective vesting periods associated with each block of grants as set forth above.  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.