Stock Options Plans and Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock Options Plans and Stock-Based Compensation [Abstract]

Stock Options Plans and Stock-Based Compensation

9.	Stock Option Plans and Stock-Based Compensation

The Company has options outstanding under three stock incentive plans: the 1994 Stock Option Plan (the “1994 Plan”), the 2004 Stock Option and Incentive Plan (the “2004 Plan”) and the 2005 Stock Option and Incentive Plan (the “2005 Plan” and together with the 1994 Plan and the 2004 Plan, the “Plans”). The 2005 Plan is the only one of the three plans under which new awards may currently be granted. Under the 2005 Plan, which became effective October 10, 2005, 1,583,682 shares were initially reserved for issuance in the form of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards and restricted stock awards. Additionally, the 2005 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning in 2007, by 4.5% of the outstanding number of shares of common stock on the immediately preceding December 31. Stock options returned to the Plans as a result of their expiration, cancellation or termination are automatically made available for issuance under the 2005 Plan. Eligibility for incentive stock options is limited to those individuals whose employment status would qualify them for the tax treatment associated with incentive stock options in accordance with the Internal Revenue Code of 1986, as amended. As of December 31, 2011, there were 2,695,397 shares available for future grant under the 2005 Plan.

Options granted under the Plans are subject to terms and conditions as determined by the compensation committee of the board of directors, including vesting periods. Options granted under the Plans are exercisable in full at any time subsequent to vesting, generally vest over periods from zero to five years, and expire seven or ten years from the date of grant or, if earlier, 60 or 90 days from employee termination. The exercise price of incentive stock options is equal to the closing price on the NASDAQ Global Market on the date of grant. The exercise price of nonstatutory options may be set at a price other than the fair market value of the common stock.

In connection with the initial public offering, the Company retrospectively reassessed the fair value of its common stock for options granted during the period from July 1, 2004 to November 8, 2005. As a result of this reassessment, the Company determined that the estimated fair market value used in granting options for the period from July 1, 2004 to December 31, 2004 was reasonable and appropriate. Accordingly, no deferred compensation was recorded for these grants. For the period from January 1, 2005 through November 8, 2005, the Company determined that the estimated fair value of its common stock increased from $4.60 to $21.60 due to a number of factors such as, among other things, the likelihood of an initial public offering, its improving operating results and the achievement of other corporate milestones in 2005. Based upon this determination, the Company recorded deferred compensation of approximately $3.4 million in the twelve months ended December 31, 2005 relating to stock options with exercise prices below the retrospectively reassessed fair market value on the date of grant. The Company recognized associated stock-based compensation expense of $0.0 million, $0.1 million and $0.2 million for the fiscal years ended December 31, 2011, January 1, 2011 and January 2, 2010, respectively.

The Company recognized $5.2 million of stock-based compensation expense during the fiscal year ended December 31, 2011 for stock options granted subsequent to the Company’s initial filing of its Form S-1 with the SEC. The unamortized fair value as of December 31, 2011 associated with these grants was $11.0 million with a weighted-average remaining recognition period of 2.39 years.

On May 29, 2009, the Company completed a one-time stock option exchange program as approved by its stockholders on May 28, 2009. In accordance with the terms and conditions of the stock option exchange program, the Company issued new options to purchase an aggregate of 310,607 shares of the Company’s common stock in exchange for the cancellation of options to purchase an aggregate of 678,850 of the Company’s common stock. The exchange ratios were designed to result in the fair value, for accounting purposes, of the new options being approximately equal to the fair value of the exchanged eligible options to ensure the Company minimized any additional compensation expense in connection with the stock option exchange program. The Company incurred no additional compensation expense in connection with the program.

The fair value of each option grant for the fiscal years ended December 31, 2011, January 1, 2011 and January 2, 2010 (excluding the new options issued in conjunction with the stock option exchange program described in the preceding paragraph for which no incremental compensation expense was realized) was computed on the grant date using the Black-Scholes option-pricing model with the following assumptions:


	Fiscal Year Ended December 31, 2011	Fiscal Year Ended January 1, 2011	Fiscal Year Ended January 2, 2010
Risk-free interest rate	0.83% — 2.24%	1.27% — 2.28%	1.45% — 2.50%
Expected dividend yield	—	—	—
Expected life	4.11 — 4.31 years	4.00 — 4.75 years	3.50 — 4.75 years
Expected volatility	61.0% — 63.0%	57.0% — 62.0%	55.0% — 56.5%

The risk-free interest rate is derived from the average U.S. Treasury constant maturity rate, which approximates the rate in effect at the time of grant, commensurate with the expected life of the instrument. The dividend yield is zero based upon the fact the Company has never paid and has no present intention to pay cash dividends. The expected term calculation is based upon the simplified method provided under the relevant authoritative guidance, the expected term is developed by averaging the contractual term of the stock option grants (7 or 10 years) with the associated vesting term (typically 4 to 5 years). Given the Company’s initial public offering in November 2005 and the resulting short history as a public company, the Company could not rely solely on company specific historical data for purposes of establishing expected volatility. Consequently, prior to 2010, the Company performed an analysis that included company specific historical data combined with data of several peer companies with similar expected option lives to develop expected volatility assumptions. During 2010, the Company began to rely solely on company specific historical data for purposes of establishing expected volatility.

Based upon the above assumptions, the weighted average fair value of each stock option granted for the fiscal years ended December 31, 2011, January 1, 2011 and January 2, 2010 (excluding the new options issued in conjunction with the stock option exchange program for which no incremental compensation expense was realized) was $16.55, $8.24 and $4.91, respectively.

The table below summarizes stock option plan activity:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value(1)
Outstanding at December 27, 2008		3,523,931		$	13.24
Granted		941,406			11.09
Exercised		(243,791	)		3.02
Canceled		(824,918	)		19.89

Outstanding at January 2, 2010		3,396,628		$	11.77
Granted		1,058,323			16.65
Exercised		(667,348	)		9.87
Canceled		(130,568	)		15.21

Outstanding at January 1, 2011		3,657,035		$	13.40
Granted		349,650			33.27
Exercised		(1,232,721	)		10.87
Canceled		(212,672	)		15.37

Outstanding at December 31, 2011		2,561,292		$	17.17		4.36 years	$	33.6 million

Vested and expected to vest at December 31, 2011		2,454,904		$	16.94		4.31 years	$	32.7 million
Exercisable as of December 31, 2011		1,397,605		$	14.51		3.56 years	$	21.4 million
Weighted average fair value of options granted during the fiscal year ended December 31, 2011				$	16.55
Options available for future grant at December 31, 2011		2,695,397

(1)

The aggregate intrinsic value on the table was calculated based upon the positive difference between the closing market value of the Company’s stock on December 31, 2011 of $29.85 and the exercise price of the underlying option.

During fiscal years 2011, 2010, and 2009, the total intrinsic value of stock options exercised was $25.4 million, $7.5 million and $2.0 million, respectively. No amounts relating to stock-based compensation have been capitalized.

The following table summarizes information about stock options outstanding at December 31, 2011:


Range of Exercise Prices	Number Outstanding		Options Outstanding Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Options Exercisable
Range of Exercise Prices	Number Outstanding			Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$ 0.55 – $ 7.76		350,786	3.07 years	$	5.40		295,500	$	4.96
8.10 – 13.46		278,793	3.79		11.54		149,955		12.41
13.74 – 14.13		203,331	3.51		14.07		147,630		14.06
14.52 – 14.52		509,475	5.20		14.52		147,242		14.52
14.54 – 17.60		258,210	2.67		16.21		243,993		16.19
17.70 – 18.74		266,045	5.07		18.20		146,458		18.08
19.85 – 24.53		346,397	4.40		23.27		255,272		22.82
24.88 – 29.85		32,555	4.90		28.47		11,555		27.19
33.48 – 33.48		308,200	6.19		33.48		—		0.00
35.96 – 35.96		7,500	6.50		35.96		—		0.00

$ 0.55 – $35.96		2,561,292	4.36 years	$	17.17		1,397,605	$	14.51

The table below summarizes activity relating to restricted stock awards:


	Number of Shares Underlying Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at December 27, 2008		16,746		$	16.03
Granted		—			—
Vested		(5,582	)		16.03
Forfeited		—			—

Outstanding at January 2, 2010		11,164		$	16.03
Granted		—			—
Vested		(5,582	)		16.03
Forfeited		—			—

Outstanding at January 1, 2011		5,582		$	16.03
Granted		—			—
Vested		(5,582	)		16.03
Forfeited		—			—

Outstanding at December 31, 2011		—		$	—

During the fiscal year ended December 31, 2011, the Company recognized $0.0 million of stock based compensation expense associated with restricted stock awards. As of December 31, 2011, the unamortized fair value of all restricted stock awards was $0.0 million. The table below summarizes activity relating to restricted stock units:


	Number of Shares Underlying Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at December 27, 2008		168,716		$	15.60
Granted		183,139			9.94
Vested		(46,162	)		15.09
Forfeited		(4,469	)		16.23

Outstanding at January 2, 2010		301,224		$	12.23
Granted		382,564			16.84
Vested		(98,015	)		13.18
Forfeited		(15,696	)		13.17

Outstanding at January 1, 2011		570,077		$	15.14
Granted		282,744			32.08
Vested		(168,041	)		15.31
Forfeited		(77,275	)		16.73

Outstanding at December 31, 2011		607,505		$	22.77

During the fiscal year ended December 31, 2011, the Company recognized $3.6 million of stock based compensation expense associated with restricted stock units. As of December 31, 2011, January 1, 2011 and January 2, 2010 the unamortized fair value of all restricted stock units was $11.7 million, $7.6 million and $3.2 million, respectively. The Company expects to recognize associated stock-based compensation expense of $3.9 million, $3.5 million, $3.1 million and $1.2 million in 2012, 2013, 2014 and 2015, respectively.

The following includes significant activity that is included in the stock option activity and restricted stock activity tables above:

On December 30, 2011, in connection with the appointment of a new member to its board of directors, the Company granted 7,370 restricted stock units. Additionally on December 30, 2011, in connection with the commencement of his employment, the Company granted one employee stock options exercisable for an aggregate of 15,000 shares of the Company’s common stock and 7,500 restricted stock units. The above stock options have a per share exercise price of $29.85, the closing price of the Company’s common stock on NASDAQ on December 30, 2011. The stock options will vest 25% on the first anniversary of the grant date and quarterly over the following three years, and the restricted stock units will vest 25% on each anniversary of the grant date.

On September 30, 2011, the Company granted to certain employees an annual merit grant totaling 43,400 restricted stock units. These restricted stock units will vest 25% on each anniversary of the grant date.

On July 1, 2011, the Company granted one member of the Board of Directors 6,118 restricted stock units in connection with the commencement of her appointment. These restricted stock units will vest 25% on each anniversary of the grant date. Also on July 1, 2011, the Company granted each of its nine non-employee board members 3,059 restricted stock units. These restricted stock units will vest 100% on the first anniversary of the grant.

On April 1, 2011, in connection with the commencement of their employment, the Company granted five employees stock options exercisable for an aggregate of 40,000 shares of the Company’s common stock and 19,000 restricted stock units. Additionally, on April 1, 2011, the Company granted to certain employees, including executive officers, an annual merit grant of stock options totaling 281,150 shares of the Company’s common stock and 141,575 restricted stock units. Each of the above stock options have a per share exercise price of $33.48, the closing price of the Company’s common stock on NASDAQ on April 1, 2011. The stock options will vest 25% on the first anniversary of the grant date and quarterly thereafter over the following three years. The restricted stock units will vest 25% on each anniversary of the grant date.