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Note 16. Share-Based Compensation
 12 Months Ended
Dec. 29, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

16.  Share-Based Compensation


Overview


In June 2007, Lakes’ shareholders approved the 2007 Lakes Stock Option and Compensation Plan (the “2007 Plan”), which is authorized to grant a total of 2.5 million shares of Lakes’ common stock. Stock options granted under 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.


Lakes also has a 1998 Stock Option and Compensation Plan. There were 27,000 stock options outstanding under this plan as of December 29, 2013. No additional options will be granted under this plan.


Consolidated share-based compensation expense, which includes stock options and restricted stock units, was $0.5 million and $0.4 million for fiscal 2013 and fiscal 2012, respectively.


For fiscal 2013 and fiscal 2012, 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 2013 and fiscal 2012:


   

Number of Common Shares

         
   

Options

Outstandinge

   

Exercisable

   

Available

for Grant

   

Weighted-Average

Exercise

Price 

 

2013

                               

Balance at December 30, 2012

    1,528,039       1,298,809       875,627     $ 2.92  

Exercised

    (280,466 )             —       2.76  

Forfeited/cancelled/expired

    (106,751 )             106,751       3.12  

Granted

    455,500               (455,500 )     3.09  

Balance at December 29, 2013

    1,596,322       1,171,520       526,878       2.98  

2012

                               

Balance at January 1, 2012

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

Restricted stock unit activity, net

    —               —       —  

Forfeited/cancelled/expired

    (116,600 )             1,000       2.88  

Granted

    —               —       —  

Balance at December 30, 2012

    1,528,039       1,298,809       875,627       2.92  

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 December 29, 2013. 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 granted during fiscal 2013. No stock options were granted during fiscal 2012.


Expected dividend yield

  –    

Risk-free interest rate

1.96

–

2.70%  

Expected term (in years)

 

10

   

Expected volatility

39.32

–

43.78%  

As of December 29, 2013, the options outstanding had a weighted-average remaining contractual life of 6.7 years, weighted-average exercise price of $2.98 and an aggregate intrinsic value of $1.6 million. The options exercisable have a weighted-average exercise price of $2.94, a weighted-average remaining contractual life of 5.8 years and an aggregate intrinsic value of $1.3 million as of December 29, 2013. The total intrinsic value of stock options exercised during fiscal 2013 was $0.4 million. No stock options were exercised during fiscal 2012.


As of December 29, 2013, Lakes’ unrecognized share-based compensation related to stock options was approximately $0.5 million, which is expected to be recognized over a weighted-average period of 2.1 years. The weighted-average grant-date fair value of stock options granted during fiscal 2013 was $1.73 per share.


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


Restricted Stock Units


There was no restricted stock activity during the year ended December 29, 2013. The following table summarizes Lakes’ restricted stock unit activity for fiscal 2012:


   

Restricted

Stock Units

   

Weighted-Average

Grant-

Date Fair Value

 

2012

               

Balance at January 1, 2012

    38,337     $ 3.25  

Vested

    (38,337 )     3.25  

Forfeited

    —       3.25  

Balance at December 30, 2012

    —       3.25  

During fiscal 2012, 35,257 common shares were issued upon the vesting of restricted stock units, net of common shares redeemed at the election of the grantee for payroll tax payment.