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Share-Based Compensation
 12 Months Ended
Jan. 01, 2012
Share-Based Compensation [Abstract]  
Share-Based Compensation

10.  Share-Based Compensation

Overview

Lakes has a 1998 Stock Option and Compensation Plan and a 1998 Director Stock Option Plan (the “1998 plans”), that were approved to grant up to an aggregate of 5.0 million shares and 0.5 million shares, respectively, of incentive and non-qualified stock options to officers, directors and employees. No additional options will be granted under the 1998 plans. In June 2007, Lakes’ shareholders approved the 2007 Lakes Stock Option and Compensation Plan (the “2007 Plan”), which authorized a total of 0.5 million shares of Lakes’ common stock. In August 2009, Lakes’ shareholders amended the 2007 Plan to increase the number of shares of Lakes common stock authorized for awards from 0.5 million to 2.5 million shares. Stock options granted under the 1998 plans and the 2007 Plan typically vest in equal installments over three-year, four-year and five-year periods, beginning on the first anniversary of the date of each grant and continue on each subsequent anniversary date until the option is fully vested. The employee must be employed by Lakes on the anniversary date in order to vest in any shares that year. Vested options are exercisable for ten years from the date of grant; however, if the employee is terminated (voluntarily or involuntarily), any unvested options as of the date of termination will be forfeited.

Consolidated share-based compensation expense, which includes stock options and restricted stock units, was $0.6 million and $0.5 million for fiscal 2011 and fiscal 2010, respectively.

For fiscal 2011 and fiscal 2010, no income tax benefit was recognized in Lakes’ consolidated statements of operations for share-based compensation arrangements. Management assessed the likelihood that the deferred tax assets relating to future tax deductions from share-based compensation will be recovered from future taxable income and determined that a valuation allowance is necessary to the extent that management currently believes it is more likely than not that tax benefits will not be realized. Management’s determination is based primarily on historical losses and earnings volatility.

Stock Options

The following table summarizes stock option activity for fiscal 2011 and fiscal 2010:

 

                                 
    Number of Common Shares     Weighted-Average
Exercise
Price		  
         
    Options
Outstanding		     Exercisable     Available
for Grant		    

2011

                                

Balance at January 2, 2011

     2,031,084       904,076       699,215     $ 2.99  

Restricted stock unit activity, net

     —       —       1,667       3.25  

Forfeited/cancelled/expired

     (390,445)       —       177,745       3.29  

Granted

     4,000       —       (4,000)       2.29  
   

 

 

            

 

 

          

Balance at January 1, 2012(*)

     1,644,639       1,155,347       874,627       2.92  
   

 

 

            

 

 

          
         

2010

                                

Balance at January 3, 2010

     1,704,187       442,350       1,121,413     $     3.93  

Restricted stock unit activity, net

     —       —       9,999       3.25  

Forfeited/cancelled/expired

     (260,103)       —       154,803       6.67  

Granted

     587,000       —       (587,000)       1.89  
   

 

 

            

 

 

          

Balance at January 2, 2011(**)

     2,031,084       904,076       699,215       2.99  
   

 

 

            

 

 

          

 

(*) Options outstanding do not include 38,337 of outstanding restricted stock units.

 

(**) Options outstanding do not include 79,996 of outstanding restricted stock units.

Lakes’ determination of fair value of share-based option awards on the date of grant using an option-pricing model is affected by the following assumptions regarding complex and subjective variables. Any changes in these assumptions may materially affect the estimated fair value of the share-based award.

 

  •  

Expected dividend yield — As the Company has not historically paid dividends, the dividend rate variable in the Black-Scholes model is zero.

 

  •  

Risk-free interest rate — The risk free interest rate assumption is based on the U.S. Treasury yield curve in effect at the time of grant and with maturities consistent with the expected term of options.

 

  •  

Expected term — The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding. It is based upon an analysis of the historical behavior of option holders during the period from September 1995 to January 1, 2012. Management believes historical data is reasonably representative of future exercise behavior.

 

  •  

Expected volatility — The volatility assumption is based on the historical weekly price data of Lakes’ stock over a two-year period. Management evaluated whether there were factors during that period which were unusual and which would distort the volatility figure if used to estimate future volatility and concluded that there were no such factors.

 

  •  

Forfeiture rate — As share-based compensation expense recognized is based on awards ultimately expected to vest, expense for grants is reduced for estimated forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Lakes’ management has reviewed the historical forfeitures which have been minimal, and as such presently amortizes the grants to the end of the vesting period and will adjust for forfeitures at the end of the term.

The following assumptions were used to estimate the fair value of stock options:

 

         
   

For the Fiscal Year Ended
                2011                            2010             

Expected dividend yield

   —   —

Risk-free interest rate

   1.94%   2.59%

Expected term (in years)

   10 years   10 years

Expected volatility

   78.61%   88.08%

As of January 1, 2012, the options outstanding had a weighted-average remaining contractual life of 7.2 years, weighted-average exercise price of $2.92 and an aggregate intrinsic value of zero. The options exercisable have a weighted-average exercise price of $3.18, a weighted-average remaining contractual life of 6.7 years and an aggregate intrinsic value of zero as of January 1, 2012.

As of January 1, 2012, Lakes’ unrecognized share-based compensation related to stock options was approximately $0.7 million, which is expected to be recognized over a weighted-average period of 1.9 years. The weighted-average grant-date fair value of stock options granted during fiscal 2011 and fiscal 2010 was $2.29 and $1.89, respectively, per share.

Lakes issues new shares of common stock upon exercise of options.

 

Restricted Stock Units.

The following table summarizes Lakes’ restricted stock unit activity for fiscal 2011 and fiscal 2010:

 

                 

Non-Vested Shares:

   Restricted
Stock  Units		     Weighted-Average
Grant-
Date Fair Value		  

2011

                

Balance at January 2, 2011

     79,996     $ 3.25  

Vested

     (39,992)       3.25  

Forfeited

     (1,667)       3.25  
   

 

 

          

Balance at January 1, 2012

     38,337       3.25  
   

 

 

          
     

2010

                

Balance at January 3, 2010

     135,000     $     3.25  

Vested

     (45,005)       3.25  

Forfeited

     (9,999)       3.25  
   

 

 

          

Balance at January 2, 2011

     79,996       3.25  
   

 

 

          

As of January 1, 2012, Lakes’ unrecognized share-based compensation related to restricted stock units was less than $0.1 million related to non-vested shares, which is expected to be recognized over a weighted-average period of less than one year.