Shareholders' Equity (Notes)

12 Months Ended

Dec. 28, 2013

Stock-Based Compensation Plans

We compensate officers, directors and key employees with stock-based compensation under three stock plans approved by our shareholders in 1997, 2004 and 2010 and administered under the supervision of our Board of Directors (“Board”). At December 28, 2013, a total of 5,956,000 shares were available for future grant under the 2010 stock plan.

Total stock-based compensation expense for 2013, 2012 and 2011, was as follows (in thousands):



	2013		2012		2011
Stock options	$	2,698	$	3,688	$	2,721
Stock awards	1,534		6,618		2,250
Total stock-based compensation expense⁽¹⁾	4,232		10,306		4,971
Income tax benefit	1,447		3,576		1,710
Total stock-based compensation expense, net of tax	$	2,785	$	6,730	$	3,261

⁽¹⁾ Includes $(0.5) million and $5.6 million of CEO transition (benefit) costs in 2013 and 2012, respectively. See CEO Transition Costs on page 57.

Stock Options

Stock option awards are granted at exercise prices equal to the closing price of our stock on the grant date. Generally, options vest proportionally over periods of two to four years and expire after 10 years. Compensation expense is recognized ratably over the vesting period.

A summary of our stock option activity for the year ended December 28, 2013 was as follows (in thousands, except per share amounts and years):



	Stock Options		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value ⁽¹⁾
Outstanding at December 29, 2012	2,889		$	15.92	5.0	$	26,109
Granted	265		20.67
Exercised	(757	)	10.52
Canceled/Forfeited	(643	)	24.66
Outstanding at December 28, 2013	1,754		$	15.77	5.6	$	11,812

Exercisable at December 28, 2013	1,185		$	13.62	4.3	$	10,180

Vested and expected to vest at December 28, 2013	1,707		$	15.66	5.5	$	11,645


⁽¹⁾	Aggregate intrinsic value includes only those options where the current share price is equal to or greater than the share price on the date of grant.

Other information pertaining to options for the years ended December 28, 2013, December 29, 2012, and December 31, 2011 is as follows (in thousands, except per share amounts):



	2013		2012		2011
Weighted-average grant date fair value of stock options granted	$	10.57	$	14.28	$	10.91
Total intrinsic value (at exercise) of stock options exercised	$	7,726	$	12,724	$	8,295

Cash received from the exercise of stock options for the fiscal year ended December 28, 2013 was $8.0 million. Our tax benefit related to the exercise of stock options for the fiscal year ended December 28, 2013 was $2.9 million.

At December 28, 2013, there was $4.2 million of total stock option compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted-average period of 2.0 years.

Determining Fair Value

We estimated the fair value of stock options granted using the Black-Scholes-Merton option-pricing model and a single option award approach. Descriptions of significant assumptions used to estimate the expected volatility, risk-free interest rate and expected term are as follows:

Expected Volatility – Expected volatility was determined based on implied volatility of our traded options and historical volatility of our stock price.

Risk-Free Interest Rate – The risk-free interest rate was based on the implied yield available on U.S. Treasury zero-coupon issues at the date of grant with a term equal to the expected term.

Expected Term – Expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on historical experience and anticipated future exercise patterns, giving consideration to the contractual terms of unexercised stock-based awards.

The assumptions used to calculate the fair value of awards granted during 2013, 2012 and 2011 using the Black-Scholes-Merton option-pricing model were as follows:



Valuation Assumptions	2013		2012		2011
Expected dividend yield	0	%	0	%	0	%
Expected volatility	61	%	63	%	78	%
Risk-free interest rate	0.9	%	1.1	%	1.9	%
Expected term (in years)	5.7		5.6		5.0

Stock Awards

We issue stock awards to certain employees in conjunction with our stock-based compensation plan. The stock awards generally vest from two to four years based on continued employment (“time based”). Compensation expense related to stock awards is determined on the grant date based on the publicly quoted fair market value of our common stock and is charged to earnings on a straight-line basis over the vesting period. Performance stock awards are time based, however, the final number of shares earned and the related compensation expense is adjusted up or down to the extent the performance target is met as of the last day of the performance period. The actual number of shares that will ultimately vest ranges from 0% to 150% of the targeted amount. For performance stock awards granted in 2013, the performance targets are net sales and operating margin and the performance period is fiscal 2015. For performance stock awards granted in 2012, the performance target is actual market share growth and the performance period is from January 2012 through December 2014. For performance stock awards granted in 2011, the performance targets were actual market share growth and free cash flow, and the performance period was from January 2011 through December 2013. The actual number of shares that will ultimately vest upon completion of the service period for the 2011 performance stock awards will be 93% of the targeted amount. We evaluate the likelihood of meeting the performance targets at each reporting period and adjust compensation expense, on a cumulative basis, based on the expected achievement of each of the performance targets.

Stock award and performance stock award activity was as follows for the year ended December 28, 2013 (in thousands, except per share amounts):



	Time- Based Stock Awards		Weighted-Average Grant Date Fair Value		Performance Stock Awards		Weighted-Average Grant Date Fair Value
Outstanding at December 29, 2012	255		$	13.62	554		$	11.47
Granted	88		20.39		119		19.28
Vested	(87	)	5.50		(182	)	0.97
Canceled/Forfeited	(17	)	16.69		(30	)	15.05
Outstanding at December 28, 2013	239		$	18.86	461		$	17.39

At December 28, 2013, there was $4.0 million of unrecognized compensation expense related to non-vested stock awards, which is expected to be recognized over a weighted-average period of 1.9 years.

Repurchases of Common Stock

Repurchases of our common stock for the years ended December 28, 2013, December 29, 2012 and December 31, 2011 were as follows (in thousands):



	2013		2012		2011
Amount repurchased under Board-approved share repurchase program	$	40,037	$	30,023	$	—
Amount repurchased in connection with the vesting of employee restricted stock grants	2,035		4,869		371
Total amount repurchased	$	42,072	$	34,892	$	371

As of December 28, 2013, the remaining authorization under our Board-approved share repurchase program was $136.7 million. There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status.

CEO Transition Costs

In February 2012, we announced that William R. McLaughlin, then President and Chief Executive Officer, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Company’s Compensation Committee approved the modification of Mr. McLaughlin’s unvested stock awards, including performance stock awards. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million ($3.7 million, net of income tax) in 2012. The performance stock awards are subject to applicable performance adjustments through 2014 based on free cash flow and actual market share growth versus performance targets. During 2013, we recorded a non-cash compensation benefit of $0.5 million ($0.4 million, net of income tax) resulting from performance-based stock award adjustments.

Net Income per Common Share

The components of basic and diluted net income per share are as follows (in thousands, except per share amounts):



	2013		2012		2011
Net income	$	60,081	$	78,094	$	60,478

Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	54,866		55,516		55,081
Effect of dilutive securities:
Options	554		1,059		821
Restricted shares	383		501		530
Diluted weighted-average shares outstanding	55,803		57,076		56,432

Net income per share – basic	$	1.10	$	1.41	$	1.10
Net income per share – diluted	$	1.08	$	1.37	$	1.07

Additional potential dilutive stock options totaling 1,288,000, 272,000 and 1,537,000 for 2013, 2012 and 2011, respectively, have been excluded from our diluted net income per share calculations because these securities’ exercise prices were anti-dilutive (e.g., greater than the average market price of our common stock).