12. STOCK BASED COMPENSATION

Our 2001 Equity and Performance Incentive Plan, as amended and restated as of April 1, 2009, ("EPIP") was approved by our shareholders and authorizes the compensation committee of the Board of Directors to make a variety of stock-based awards while selecting the form that is most appropriate for the company and eligible recipients. Our officers, key employees and non-employee directors (whose grants are generally approved by the full Board of Directors) are eligible to receive awards under the EPIP. The aggregate number of shares that may be issued or transferred under the EPIP is 27,937,500 shares. Over the life of the EPIP, the company has only issued options, restricted stock and deferred stock. The following is a summary of stock options, restricted stock, and deferred stock outstanding under the EPIP. Information relating to the company's stock appreciation rights which are not issued under the EPIP is also disclosed below.

Non-Qualified Stock Options

The following non-qualified stock options ("NQSO") have been granted under the EPIP with service period remaining. The Black-Scholes option-pricing model was used to estimate the grant date fair value (amounts in thousands, except price data and as indicated):


Grant date	2/10/2011		2/9/2010		2/9/2009
Shares granted		2,142		1,703		1,490
Exercise price		16.31		16.67		15.89
Vesting date		2/10/2014		2/9/2013		2/9/2012
Fair value per share ($)		3.47		3.69		3.91
Dividend yield (%)(1)		3.00		3.00		2.20
Expected volatility (%)(2)		29.20		30.60		31.80
Risk-free interest rate (%)(3)		2.44		2.35		2.00
Expected option life (years)(4)		5.00		5.00		5.00
Outstanding at July 16, 2011		2,139		1,675		1,468

1.	Dividend yield — estimated yield based on the historical dividend payment for the four most recent dividend payments prior to the grant date.

2.	Expected volatility — based on historical volatility over the expected term using daily stock prices.

3.	Risk-free interest rate — United States Treasury Constant Maturity rates as of the grant date over the expected term.

4.	Expected option life — The 2009, 2010, and 2011 grant assumptions are based on the simplified formula determined in accordance with Staff Accounting Bulletin No. 110. The company does not have sufficient historical exercise behavior data to reasonably estimate the expected option life.

The summary of the shares granted and outstanding for NQSO activity for the twenty-eight weeks ended July 16, 2011 pursuant to the EPIP is set forth below (amounts in thousands, except price data):


	NQSO			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2011		6,547		$	14.66
Granted		2,142		$	16.31
Exercised		(1,135	)	$	10.99
Forfeited		(33	)	$	16.33

Outstanding at July 16, 2011		7,521		$	15.68		4.84	$	54,764

Exercisable at July 16, 2011		2,253		$	14.21		2.84	$	19,716

As of July 16, 2011, there was $7.8 million of total unrecognized compensation expense related to outstanding NQSO. This cost is expected to be recognized on a straight-line basis over a weighted-average period of 2.0 years.

The cash received, the windfall tax benefits, and intrinsic value from NQSO exercises for the twenty-eight weeks ended July 16, 2011 and July 17, 2010 were as follows (amounts in thousands):


	July 16, 2011		July 17, 2010
Cash received from exercises	$	12,471	$	4,495
Cash tax windfall, net	$	3,030	$	570
Intrinsic value of NQSO exercised	$	11,494	$	2,796

Generally, if the employee dies, becomes disabled or retires at normal retirement age (age 65 or later), the NQSO immediately vest and must be exercised within two years. In addition, NQSO will vest if the company undergoes a change in control.

Performance-Contingent Restricted Stock

Certain key employees have been granted performance-contingent restricted stock. The awards generally vest approximately two years from the date of grant (after the filing of the company's Annual Report on Form 10-K) and the performance condition requires the company's "return on invested capital" to exceed its weighted average "cost of capital" by 3.75% (the "ROI Target") over the two fiscal years immediately preceding the vesting date. If the ROI Target is not met the awards are forfeited. Furthermore, each grant of performance-contingent restricted stock will be adjusted as set forth in the market condition described below:

•

If the ROI Target is satisfied, then the performance-contingent restricted stock grant may be adjusted based on the company's total return to shareholders ("Company TSR") percent rank as compared to the total return to shareholders of the S&P Packaged Food & Meat Index ("S&P TSR") in the manner set forth below:

•

If the Company TSR rank is equal to the 50th percentile of the S&P TSR, then no adjustment;

•

If the Company TSR rank is less than the 50th percentile of the S&P TSR, the grant shall be reduced by 1.3% for each percentile below the 50th percentile that the Company TSR is less than the 50th percentile of S&P TSR, but in no event shall such reduction exceed 20%; or

•

If the Company TSR rank is greater than the 50th percentile of the S&P TSR, the grant shall be increased by 1.3% for each percentile above the 50th percentile that Company TSR is greater than the 50th percentile of S&P TSR, but in no event shall such increase exceed 20%.

In connection with the vesting of the performance-contingent restricted stock granted in February 2009, during the applicable measurement period, the Company TSR rank was less than the 50th percentile and the grant was reduced by 20% of the award or 60,420 common shares. The total amount of shares that were issued to plan participants was 241,680. Because the company achieved the ROI Target the total cost for the award was not reversed for the portion of shares that did not vest.

The performance-contingent restricted stock generally vests immediately if the grantee dies or becomes disabled. However, upon retirement the grantee will receive a pro-rata number of shares through the grantee's retirement date at the normal vesting date. In addition, the performance-contingent restricted stock will immediately vest at the grant date award level without adjustment if the company undergoes a change in control. During the vesting period, the grantee is treated as a normal shareholder with respect to voting rights. Dividends declared during the vesting period will accrue and will be paid at vesting for the shares that ultimately vest but will not exceed 100% of the award. The fair value estimate was determined using a Monte Carlo simulation model, which utilizes multiple input variables to determine the probability of the company achieving the market condition discussed above. Inputs into the model included the following for the company and comparator companies: (i) total stockholder return from the beginning of the performance cycle through the measurement date; (ii) volatility; (iii) risk-free interest rates; and (iv) the correlation of the comparator companies' total stockholder return. The inputs are based on historical capital market data.

The following performance-contingent restricted stock awards have been granted under the EPIP since fiscal 2009 (amounts in thousands, except price data):


Grant date	2/10/2011		2/9/2010		2/9/2009
Shares granted		324		268		306
Approximate vesting date		2/10/2013		2/9/2012		2/9/2011
Fair value per share	$	15.93	$	17.59	$	16.64

A summary of the status of the company's nonvested shares for performance-contingent restricted stock as of July 16, 2011, and changes during the twenty-eight weeks ended July 16, 2011, is presented below (amounts in thousands, except price data):


	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term		Aggregate Current Intrinsic Value
Nonvested at January 1, 2011		568		$	17.08
Granted		324		$	15.93
Vested		(242	)	$	16.64
Canceled		(60	)	$	16.64
Forfeited		(7	)	$	16.96

Nonvested at July 16, 2011		583		$	16.67		1.26	$	13,396

As of July 16, 2011, there was $5.3 million of total unrecognized compensation cost related to nonvested restricted stock granted by the EPIP. That cost is expected to be recognized over a weighted-average period of 1.3 years. The total fair value of shares vested during the twenty-eight weeks ended July 16, 2011 was $3.4 million.

Deferred Stock

Pursuant to the EPIP, the company allows non-employee directors to convert their annual board retainers into deferred stock. The deferred stock has a minimum two year vesting period and will be distributed to the individual (along with accumulated dividends) at a time designated by the individual at the date of conversion. During the twenty-eight weeks ending July 16, 2011, an aggregate of 25,440 shares were converted. The company records compensation expense for this deferred stock over the two-year minimum vesting period based on the closing price of the company's common stock on the date of conversion. During the twenty-eight weeks ending July 16, 2011, a total of 32,025 deferred shares were exercised for retainer conversions.

Pursuant to the EPIP non-employee directors also receive annual grants of deferred stock. This deferred stock vests over one year from the grant date. During the second quarter of fiscal 2011, non-employee directors were granted an aggregate of 50,400 shares of deferred stock. The deferred stock will be distributed to the grantee at a time designated by the grantee at the date of grant. Compensation expense is recorded on this deferred stock over the one year minimum vesting period. During the first and second quarter of fiscal 2011 a total of 52,732 shares were exercised for deferred shares issued under the fiscal 2010 grant.

The deferred stock activity for the twenty-eight weeks ended July 16, 2011 is set forth below (amounts in thousands, except price data):


	Shares			Weighted Average Grant Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2011		240		$	15.11
Deferred stock issued		76		$	19.35
Deferred stock exercised		(85	)	$	15.31

Outstanding at July 16, 2011		231		$	16.43		0.41	$	5,305

Stock Appreciation Rights

Prior to 2007, the company allowed non-employee directors to convert their retainers and committee chairman fees into stock appreciation rights ("rights"). These rights vest after one year and can be exercised over nine years. The company records compensation expense for these rights at a measurement date based on changes between the grant price and an estimated fair value of the rights using the Black-Scholes option-pricing model.

The fair value of the rights at July 16, 2011 ranged from $10.68 to $21.61. The following assumptions were used to determine fair value of the rights discussed above using the Black-Scholes option-pricing model at July 17, 2010: dividend yield 3.0%; expected volatility 29.0%; risk-free interest rate 1.47% and expected life of 0.05 years to 2.45 years.

The rights activity for the twenty-eight weeks ended July 16, 2011 is set forth below (amounts in thousands except price data):


	Rights			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term		Aggregate Current Intrinsic Value
Outstanding at January 1, 2011		348		$	11.76
Rights exercised		(161	)	$	12.62
Rights forfeited		—			—

Outstanding at July 16, 2011		187		$	11.02		2.94	$	2,775

The following table summarizes the company's stock based compensation expense (income) for the twelve and twenty-eight week periods ended July 16, 2011 and July 17, 2010, respectively (amounts in thousands):


	FOR THE TWELVE WEEKS ENDED					FOR THE TWENTY-EIGHT WEEKS ENDED
	JULY 16, 2011		JULY 17, 2010			JULY 16, 2011		JULY 17, 2010
Stock options	$	1,140	$	1,544		$	4,682	$	3,954
Restricted stock		1,117		1,123			2,549		2,669
Stock appreciation rights		830		(259	)		1,344		108
Deferred stock		370		321			812		751

Total stock based compensation	$	3,457	$	2,729		$	9,387	$	7,482