Stock-Based Compensation

Stock Option Plans

As of December 29, 2013, with the addition of the 2013 Plan, the Company has a total of five equity plans.

The Company’s 1999 Equity Incentive Plan (“1999 Plan”) provides for the grant of incentive stock options, non-statutory stock options, stock bonuses and restricted stock awards, which may be granted to employees, including officers, non-employee directors and consultants. As of May 19, 2004, the effective date of the Company’s initial public offering, no additional awards were granted under the 1999 Plan.

The Company’s 2004 Equity Incentive Plan (“2004 Plan”) provides for the grant of non-statutory stock options, restricted stock awards, stock appreciation rights, RSUs and other forms of equity compensation, which may be granted to employees, including officers, non-employee directors and consultants. Upon the effectiveness of the 2013 Plan (as defined below), the 2004 Plan was suspended and any equity compensation that would have been granted under the 2004 Plan was thereafter granted under the 2013 Plan.

The Company’s 2004 Non-Employee Directors’ Stock Option Plan (“Directors’ Plan”) provides for the automatic grant of non-statutory stock options to purchase shares of common stock to non-employee directors. In April 2012, the Directors' Plan was suspended; therefore, any equity compensation that would have been granted under the Directors' Plan is now granted under the 2004 Plan. Upon the effectiveness of the 2013 Plan, any equity compensation that would have been granted under the Directors' Plan is now granted under the 2013 Plan.

On May 21, 2013, the date of the Company's 2013 Annual Meeting of Stockholders (the "Annual Meeting"), the Company's stockholders approved the 2013 Equity Incentive Plan (the “2013 Plan”), effective as of such date. The 2013 Plan is intended to be the successor to the 2004 Plan and the Directors' Plan. Once the 2013 Plan became effective, the 2004 Plan was suspended and any equity compensation that would have been granted under the 2004 Plan is now granted under the 2013 Plan. The Directors' Plan was suspended in April 2012 and no equity compensation has been granted under the Directors' Plan since that date. The 2013 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards. Any equity compensation that would have been granted under the Directors' Plan, or subsequently under the 2004 Plan is now granted under the 2013 Plan. As of December 29, 2013, there were 1,014,962 shares of common stock reserved for future grants under the 2013 Plan.

The majority of options granted generally provide for 25% vesting on the first anniversary from the date of grant with the remainder vesting monthly over the subsequent three years and expire 10 years from the date of grant. Nearly all outstanding stock options are non-qualified stock options. RSUs generally vest 25% on the first anniversary from the date of grant with the remaining vesting quarterly over three years.

Employee Stock Purchase Plans

In April 2004, the Company adopted the 2004 Employee Stock Purchase Plan (the “Purchase Plan”). As of December 29, 2013, 1,000,000 shares of common stock are authorized to be sold under the Purchase Plan. Commencing on the first day of the fiscal year in which the Company first makes an offering under the Purchase Plan, this amount will be increased annually for 20 years. The increase in amount is the lesser of 320,000 shares or one and one half percent of the number of shares of common stock outstanding on each such date, unless a lower number of shares is approved by the board of directors. The Purchase Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. As of December 29, 2013, no shares of common stock have been offered for sale under the Purchase Plan.

Option Grants to Non-Employees

The Company accounts for equity instruments issued to non-employees at their fair value on the measurement date.

Stock-Based Compensation Expense

The following weighted average assumptions were used for the valuation of stock options granted during the periods presented:



	Year Ended
	December 29, 2013			December 30, 2012			January 1, 2012
Expected term	4.5 years			4.3 years			4.0 years
Expected volatility	56.9		%	58.9		%	58.5		%
Expected dividend yield	0.0		%	0.0		%	0.0		%
Risk-free interest rate	0.9		%	0.7		%	0.9		%
Estimated weighted average fair value per option granted	$	14.68		$	15.45		$	20.54


•	Expected Term — This is the estimated period of time until exercise and is based primarily on historical experience for options with similar terms and conditions, giving consideration to future expectations. The Company also considers the expected terms of other companies that have similar contractual terms, expected stock volatility and employee demographics.


•	Expected Volatility — This is based on the Company’s historical stock price volatility commensurate with the expected term of the options on the date of grant.


•	Expected Dividend Yield — The Company has not paid dividends in the past and does not expect to pay dividends in the near future.


•	Risk-Free Interest Rate — This is the rate on nominal U.S. Government Treasury Bills with lives commensurate with the expected term of the options on the date of grant.

The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

The following table represents total stock-based compensation expense recognized in the consolidated financial statements (in thousands):



	Year Ended
	December 29, 2013		December 30, 2012		January 1, 2012
Stock-based compensation expense in selling, general and administrative expenses	$	4,860	$	4,867	$	6,322
Stock-based compensation expense in cost of sales	88		100		92
Total stock-based compensation expense in the consolidated statements of operations	$	4,948	$	4,967	$	6,414
Total related tax benefit	$	1,732	$	1,753	$	2,194
Stock-based compensation capitalized	$	158	$	133	$	144

Stock-based compensation capitalized is included in property and equipment, net, in the consolidated balance sheets as a component of the cost capitalized for website development and the development of software for internal use. As of December 29, 2013, the Company had total unrecognized compensation costs related to unvested stock options and RSUs of approximately $7.8 million, before income taxes. The Company expects to recognize this cost over a weighted average period of 2.26 years for the options and 2.96 years for the RSUs.

The following summarizes all stock option transactions from January 3, 2011 through December 29, 2013:



	Options		Weighted average exercise price		Weighted average remaining contractual term	Total intrinsic value
	(In thousands)				(In years)	(In thousands)
Balance, January 3, 2011	2,445		$	38.04
Granted	436		45.51
Exercised	(304	)	23.57
Canceled	(186	)	43.54
Balance, January 1, 2012	2,391		40.82
Granted	432		33.15
Exercised	(220	)	31.15
Canceled	(404	)	50.26
Balance, December 30, 2012	2,199		38.55
Granted	117		31.67
Exercised	(716	)	29.88
Canceled	(107	)	41.83
Balance, December 29, 2013	1,493		$	41.93	6.14	$	15,022
Vested and expected to vest at December 29, 2013	1,446		$	42.17	6.07	$	14,382
Exercisable at December 29, 2013	1,053		$	44.60	5.29	$	9,357

The following table summarizes additional information about stock options outstanding at December 29, 2013:



	Outstanding				Exercisable
	Options	Weighted Average
		Remaining Contractual Life	Exercise Price
Range of Exercise Price		Remaining Contractual Life	Exercise Price		Options	Weighted Average Exercise Price
	(In thousands)	(In years)			(In thousands)
$18.50 — $32.42	402	6.14	$	27.72	246	$	25.85
$32.43 — $35.55	402	7.28	33.89		200	33.76
$35.56 — $50.89	386	5.81	44.67		340	44.86
$50.90 — $94.99	303	5.06	67.93		267	69.59
	1,493	6.14	41.93		1,053	44.60

The following summarizes all RSU activity from January 3, 2011 through December 29, 2013:



	RSUs		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)				(In years)	(In thousands)
Balance, January 3, 2011	6		$	25.61
Granted	—		—
Vested	(5	)	52.53
Canceled	(1	)	49.49
Balance, January 1, 2012	—		—
Granted	6		29.67
Vested	(3	)	35.23
Canceled	—		—
Balance, December 30, 2012	3		29.67
Granted	97		32.07
Vested	(10	)	38.76
Canceled	(2	)	31.34
Balance, December 29, 2013	88		$	31.01	1.32	$	4,184
Vested and expected to vest at December 29, 2013	77		$	36.37	1.19	$	3,666

The aggregate intrinsic value in the tables above are before applicable income taxes and represent the amount recipients would have received if all stock options had been exercised or RSUs had been released on the last business day of the period indicated, based on the closing stock price of the Company's common stock on such date.

The total intrinsic value of options exercised were approximately $7.3 million, $1.6 million and $5.9 million in the fiscal years ended December 29, 2013, December 30, 2012 and January 1, 2012, respectively. During the fiscal years ended December 29, 2013, December 30, 2012 and January 1, 2012, the total fair value of options vested was approximately $4.9 million, $4.6 million and $6.4 million, respectively.