STOCK-BASED COMPENSATION

Stock-based compensation cost recognized in operating results (included in selling, general, and administrative expenses) for the three and nine months ended September 29, 2013 was $1.3 million and $5.1 million ($1.2 million and $5.0 million, net of tax), respectively. For the three and nine months ended September 23, 2012, the total compensation expense was $0.9 million and $3.6 million ($0.8 million and $3.5 million, net of tax), respectively. The associated actual tax benefit realized for the tax deduction from option exercises of share-based payment units and awards released equaled $0.4 million and $0.8 million for the nine months ended September 29, 2013 and September 23, 2012, respectively.

On July 24, 2012, Restricted Stock Units (RSUs) were awarded to certain of our key employees as part of the LTIP Second Half 2012 plan. The number of shares for these units varied based on individual performance versus second half 2012 goals. These goals were developed for employees who can influence key metrics set forth in the new business strategy during the July 2012 to December 2012 performance period. The weighted average price for these RSUs was $7.59 per share. The value of these units was charged to compensation expense on a straight-line basis over the vesting period with periodic adjustments to account for changes in anticipated award amounts and estimated forfeiture rates. For fiscal year 2012, $0.6 million was charged to compensation expense for the LTIP Second Half 2012 Plan. Final assessment of these goals was completed in the second quarter of 2013, resulting in a reversal of $0.1 million of compensation expense. As of May 1, 2013, 74,321 units vested at a grant price of $7.59 per share. These RSUs reduce the shares available to grant under the 2004 Omnibus Incentive Compensation Plan (2004 Plan).

On February 27, 2013, RSUs were awarded to certain key employees as part of the LTIP 2013 plan. These awards have a market condition. The number of shares for these units varies based on the relative ranking of our total shareholder return (TSR) against the TSRs of the constituents of the Russell 2000 Index during the January 2013 to December 2015 performance period. The final value of these units will be determined by the number of shares earned. The value of these units is charged to compensation expense on a straight-line basis over the vesting period with periodic adjustments to account for changes in anticipated award amounts and estimated forfeitures rates. The grant date fair value for these RSUs was $11.91 per share. Additional RSUs related to the LTIP 2013 plan were awarded on May 28, 2013, with a grant date fair value of $11.56 per share. For the first nine months of 2013, $29 thousand was charged to compensation expense. As of September 29, 2013, total unamortized compensation expense for these grants was $0.2 million. As of September 29, 2013, the maximum achievable RSUs outstanding under this plan are 26,400 units. These RSUs reduce the shares available to grant under the 2004 Plan.

To determine the fair value of RSUs with market conditions that were awarded on February 27, 2013, we used a Monte Carlo simulation using the following assumptions: (i) expected volatility of 47.01%, (ii) risk-free rate of 0.35%, and (iii) an expected dividend yield of zero.

To determine the fair value of RSUs with market conditions that were awarded on May 28, 2013, we used a Monte Carlo simulation using the following assumptions: (i) expected volatility of 45.23%, (ii) risk-free rate of 0.41%, and (iii) an expected dividend yield of zero.

On May 2, 2013 a cash-based performance award was awarded to our CEO under the terms of our 2013 LTIP plan. Our relative TSR performance determines the payout as a percentage of an established target cash amount of $0.4 million. Because the final payout of the award is made in cash, the award is classified as a liability and the fair value is marked-to-market each reporting period. As of September 29, 2013, the fair value of the award is $0.79 per dollar of the target cash amount awarded. The value of this award is charged to compensation expense on a straight-line basis over the vesting period. For the first nine months of 2013, $0.1 million was charged to compensation expense. The associated liability is included in Accrued Compensation and Related Taxes in the accompanying Consolidated Balance Sheets.

To determine the fair value of the cash-based performance award as of September 29, 2013, we used a Monte Carlo simulation using the following assumptions: (i) expected volatility of 46.63%, (ii) risk-free rate of 0.42%, and (iii) an expected dividend yield of zero.

As of September 29, 2013, we assessed our performance in connection with the LTIP 2011 plan and concluded that the remaining threshold for the performance conditions would not be achieved. As a result, during the third quarter of 2013, we reversed $0.3 million of previously recognized compensation cost.

As of September 29, 2013, we assessed the performance of our LTIP 2012 plan. Due to current and projected shortfalls in our EBIDTA growth compared to the LTIP 2012 plan requirements, we concluded that it was probable that these performance conditions would not be met. We therefore reversed $0.2 million of previously recognized compensation cost during the third quarter of 2013.

Stock Options

Option activity under the principal option plans as of September 29, 2013 and changes during the nine months ended September 29, 2013 were as follows:



	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 30, 2012	2,744,057		$	17.24	5.01	$	1,321
Granted	132,367		12.32
Exercised	(196,924	)	11.04
Forfeited or expired	(140,450	)	13.40
Outstanding at September 29, 2013	2,539,050		$	17.68	4.58	$	5,658
Vested and expected to vest at September 29, 2013	2,435,385		$	18.02	4.40	$	4,932
Exercisable at September 29, 2013	2,069,447		$	19.28	3.62	$	2,788

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the third quarter of fiscal 2013 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 29, 2013. This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised for the nine months ended September 29, 2013 and September 23, 2012 was $0.7 million and $0.1 million, respectively.

As of September 29, 2013, $1.2 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.8 years.

The fair value of share-based payment units was estimated using the Black-Scholes option pricing model. The table below presents the weighted-average expected life in years. The expected life computation is based on historical exercise patterns and post-vesting termination behavior. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions and weighted-average fair values were as follows:



Nine months ended	September 29, 2013		September 23, 2012
Weighted-average fair value of grants	5.46		4.38
Valuation assumptions:
Expected dividend yield	0.00	%	0.00	%
Expected volatility	50.79	%	52.08	%
Expected life (in years)	5.08		5.06
Risk-free interest rate	0.835	%	0.750	%

Restricted Stock Units

Nonvested restricted stock units as of September 29, 2013 and changes during the nine months ended September 29, 2013 were as follows:



	Number of Shares		Weighted- Average Vest Date (in years)	Weighted- Average Grant Date Fair Value
Nonvested at December 30, 2012	563,106		0.79	$	21.14
Granted	568,533			$	12.19
Vested	(248,277	)		$	14.47
Forfeited	(29,066	)		$	14.02
Nonvested at September 29, 2013	854,296		0.88	$	17.36
Vested and expected to vest at September 29, 2013	766,057		0.84
Vested at September 29, 2013	52,500		—

The total fair value of restricted stock awards vested during the first nine months of 2013 was $4.2 million as compared to $2.1 million in the first nine months of 2012. As of September 29, 2013, there was $3.7 million of unrecognized stock-based compensation expense related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.5 years.

Other Compensation Arrangements

On March 15, 2010, we initiated a plan in which time-vested cash unit awards were granted to eligible employees. The time-vested cash unit awards under this plan vest evenly over two or three years from the date of grant. The total amount accrued related to the plan equaled $0.7 million as of September 29, 2013, of which $0.3 million and $0.9 million was expensed for the three and nine months ended September 29, 2013. The total amount accrued related to the plan equaled $0.7 million as of September 23, 2012, of which $0.3 million and $0.8 million was expensed for the three and nine months ended September 23, 2012. The associated liability is included in Accrued Compensation and Related Taxes in the accompanying Consolidated Balance Sheets.