Note 3. Stock-Based Compensation

The Company's selling, general and administrative expenses for the three months ended June 26, 2011 and June 27, 2010 includes $821,300 and $557,200, respectively, of non-cash stock-based compensation expense. Stock-based compensation expense is primarily related to our Performance Stock Unit (PSU) Program. In addition, the Company recorded an excess tax benefit directly to shareholders' equity of $336,800 and $751,600, primarily related to the PSUs which vested during the three months ended June 26, 2011 and June 27, 2010, respectively.

Performance Stock Units: The following table summarizes the activity under the Company's PSU program for the first three months of fiscal year 2012:

	Three Months Ended June 26, 2011			Weighted Average Fair Value at Grant Date
Shares available for issue under outstanding PSUs, non-vested beginning of period		696,089		$	10.15
Granted		255,000			10.89
Vested		(201,546	)		8.20
Forfeited/cancelled		(149,699	)		15.55
Shares available for issue under outstanding PSUs, non-vested end of period		599,844		$	9.77

Of the 599,844 shares available for issuance under outstanding PSUs, but not yet vested as of June 26, 2011, 351,844 shares have been earned, and assuming the respective participants remain employed by or associated with the Company on these dates, these shares will vest and be issued ratably on or about May 1 of 2012, 2013 and 2014.

The PSUs cancelled during fiscal year 2012 primarily related to the fiscal year 2011 grant of PSUs, which had a 1-year measurement period (fiscal year 2011). Of the PSUs cancelled, PSUs covering 138,871 shares were cancelled because the applicable fiscal 2011 performance targets were not fully satisfied. In addition, 3,828 non-vested shares related to the fiscal year 2010 grant of PSUs were forfeited and 7,000 shares related to the fiscal year 2012 grant of PSUs (further discussed below) were cancelled due to a participant no longer being employed by the Company. Per the provisions of the Second Amended and Restated 1994 Stock and Incentive Plan (the “1994 Plan”), the shares related to these forfeited and cancelled PSUs were added back to the 1994 Plan and became available for future issuance.

During fiscal year 2012, the Compensation Committee of the Board of Directors, with the concurrence of the full Board of Directors, granted additional PSUs to select key employees, providing them with the opportunity to earn up to 255,000 additional shares of the Company's common stock in the aggregate (of which 7,000 PSUs have since been cancelled due to a participant no longer being employed by the Company), depending upon whether certain threshold or goal earnings per share targets are met, subject to individual performance. These PSUs have only one measurement year (fiscal year 2012), with any shares earned at the end of fiscal year 2012 to vest and be issued ratably on or about May 1 of each of 2012, 2013, 2014 and 2015, provided that the respective participants remain employed by the Company on each such date.

If the maximum number of PSUs granted (net of known cancellations) in fiscal year 2012 is assumed to be earned, total unrecognized compensation costs, on these and all other earned but unvested PSU's would be approximately $2.3 million, net of estimated forfeitures, as of June 26, 2011 and would be expensed through fiscal year 2015. To the extent the actual forfeiture rate is different from what is anticipated, stock-based compensation related to these awards will be different from the Company's expectations.

Stock Options: In accordance with the FASB standard regarding stock compensation and share-based payments, the fair value of the Company's stock options has been determined using the Black-Scholes-Merton option pricing model, based upon facts and assumptions existing at the date of grant. Outstanding stock options have exercise prices equal to the market price of the Company's common stock on the grant date.

The fair value of each option at the date of grant is amortized as compensation expense over the option service or vesting period. This occurs without regard to subsequent changes in stock price, volatility or interest rates over time, provided that the option remains outstanding. As of June 26, 2011, all outstanding stock options are fully vested. The following table summarizes the pertinent option information for outstanding options for the three months ended June 26, 2011:

	Shares		Weighted Average Exercise Price
Outstanding, beginning of period		135,000	$	5.11
Granted		--		--
Exercised		--		--
Cancelled		--		--
Outstanding and exercisable, end of period		135,000		5.11

Restricted Stock: In fiscal year 2007, the Company granted 225,000 shares of the Company's common stock to its Chairman and Chief Executive Officer as a restricted stock award under the 1994 Plan. These shares are issued and vest (subject to the risk of forfeiture) ratably over ten fiscal years based on service, beginning on the last day of fiscal year 2007 and ending on the last day of fiscal year 2016, subject, however, to the terms applicable to the award, including terms providing for possible acceleration of vesting upon death, disability, change in control or certain other events. The weighted average fair value for these shares at the grant date was $10.56. As of June 26, 2011, 112,500 shares remained unvested, and there was no activity related to these restricted shares during the first three months of fiscal year 2012. As of June 26, 2011, there was approximately $1.1 million of total unrecognized compensation costs, net of estimated forfeitures, related to this issuance of restricted stock. Unrecognized compensation costs are expected to be recognized ratably over a remaining period of approximately five years.

Also in fiscal year 2011, restricted stock unit awards providing for the future issuance of up to 22,500 shares in the aggregate, were made to three non-executive employees. These shares vest and will be issued on the last day of fiscal year 2014, provided the employee is still employed by the Company on that date. The weighted average fair value for these shares at the award date was $16.13. Two of the non-executive employees are no longer employed by the Company as of June 26, 2011, and thus 15,000 shares, which had been the subject of the award, have been cancelled and made available for future grants under the 1994 Plan. As of June 26, 2011, there was approximately $0.1 million of total unrecognized compensation costs, net of estimated forfeitures, related to this issuance of restricted stock. Unrecognized compensation costs are expected to be recognized ratably over a period of approximately three years.

On April 25, 2011, the Company granted an aggregate of 36,000 restricted stock awards to the non-employee directors of the Company. These awards provide for the issuance of shares of the Company's common stock in accordance with a vesting schedule. The shares vest and will be issued 25% on or about each of May 1 of 2012, 2013, 2014 and 2015, provided that the participant remains associated with the Company (or meets other criteria as prescribed in the applicable award agreement) on each such date. As of June 26, 2011, there was approximately $0.4 million of total unrecognized compensation costs, net of estimated forfeitures, related to this issuance of this restricted stock award.

To the extent the actual forfeiture rates are different from what is estimated, stock-based compensation related to the restricted awards will be different from the Company's expectations.