Equity and Incentive Compensation Plans

Stock Incentive Plans

During the quarter and nine months ended October 27, 2012, the Company recognized approximately $4.8 million and $12.3 million, respectively, in stock-based compensation expense. During the quarter and nine months ended October 29, 2011, the Company recognized approximately $6.3 million and $17.0 million, respectively, in stock-based compensation expense. As of October 27, 2012, there was $8.0 million, $10.6 million, and $1.7 million of unrecognized compensation cost related to unvested stock options, unvested restricted stock awards and unvested restricted unit awards, respectively, which is expected to be recognized over a remaining weighted average vesting period of 2.0 years, 1.7 years and 0.4 years, respectively. Restricted stock award grants, restricted unit award vestings and shares underlying stock option exercises during the nine months ended October 27, 2012 were issued out of treasury stock. In addition, restricted stock awards forfeited, as well as shares returned to cover employee tax withholding obligations related to stock option exercises and restricted stock award vestings, were returned to treasury stock.

Stock Options

The following table summarizes stock option activity for the nine months ended October 27, 2012:



	Nine Months Ended
	October 27, 2012
	Shares		Weighted Average Exercise Price
Options outstanding at beginning of period	4,498,817		$	22.18
Granted (1)	524,750		28.05
Exercised	(1,890,340	)	18.15
Forfeited or expired	(303,266	)	26.95
Options outstanding at end of period	2,829,961		$	25.45

Vested and exercisable at October 27, 2012	1,890,259		$	25.20

Options expected to vest in the future as of October 27, 2012	816,906		$	26.06


(1)	Options vest annually over a three-year period and expire ten years after the grant date.


5.	Equity and Incentive Compensation Plans (Continued)

The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted as of the grant date. For the quarters and nine months ended October 27, 2012 and October 29, 2011, the fair value of options granted was estimated using the following assumptions:



	Quarter Ended				Nine Months Ended
	October 27, 2012		October 29, 2011		October 27, 2012		October 29, 2011
Expected volatility	53.4	%	—	%	54.6	%	57.1	%
Risk-free interest rate	0.6	%	—	%	0.9	%	1.8	%
Expected life (years)	4.4		—		4.4		4.54
Dividend yield	—		—		—		—

The weighted average fair value of options granted during the quarter ended October 27, 2012 was $16.60 per share. There were no options granted during the quarter ended October 29, 2011. The weighted average fair value of options granted during the nine months ended October 27, 2012 and October 29, 2011 was $12.44 and $13.21 per share, respectively. The Company estimates the volatility of its common stock on the date of grant based on an average of its historical common stock volatility and the implied volatility of publicly traded options on its common stock.

Restricted Stock

The following table summarizes restricted stock activity for the nine months ended October 27, 2012:



	Time - Based					Performance - Based
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value
Restricted stock awards at January 28, 2012	523,096			$	18.40	247,003			$	17.13
Granted	307,562		⁽¹⁾	27.87		146,500		⁽²⁾	27.85
Vested	(319,339	)		14.07		(81,364	)		10.44
Forfeited	(54,256	)		26.24		(108,468	)		16.57
Restricted stock awards at October 27, 2012	457,063			$	26.87	203,671			$	27.82


(1)	Of this amount, 257,375 shares vest in equal installments in each of March 2013, 2014 and 2015, 5,000 shares vest in equal installments in each of September 2013, 2014 and 2015, 4,000 shares vest in equal installments in each of March 2013 and 2014 and 41,187 shares vest in May 2013.


(2)	These shares vest over a three-year period based on achievement of performance targets set bi-annually for each tranche of the grant. Based on Company performance, grantees may earn 50% to 150% of the shares granted with respect to each tranche. If the Company does not achieve the minimum threshold goal associated with such shares, grantees will not earn any shares with respect to that tranche.

Restricted Units

The following table summarizes restricted unit activity for the nine months ended October 27, 2012:



	Time - Based				Performance - Based
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
Restricted unit awards at January 28, 2012	175,353		$	19.58	98,670		$	19.58
Vested	(86,165	)	19.58		(27,871	)	19.58
Forfeited	(14,172	)	19.58		(24,796	)	19.58
Restricted unit awards at October 27, 2012	75,016		$	19.58	46,003		$	19.58


5.	Equity and Incentive Compensation Plans (Continued)

Long-Term Performance Compensation

The Company maintains a long-term cash incentive program, the Restricted Cash Program (“RCP”) for vice-presidents and above. During the quarters ended October 27, 2012 and October 29, 2011, the Company recognized $6.5 million and $6.8 million in compensation expense under the RCP, a portion of which results from changes in estimates. During the nine months ended October 27, 2012 and October 29, 2011, the Company recognized $14.7 million and $23.6 million in compensation expense under the RCP, a portion of which results from changes in estimates. As of October 27, 2012, there was $41.0 million of unrecognized compensation cost under the RCP, which is expected to be recognized over a remaining weighted average deferral period of 2.7 years.