3.                      Stock-Based Compensation

Stock Options

During the twelve weeks ended July 8, 2012, the Company issued no options. Compensation expense for issued options is recognized over the remaining vesting period less expected forfeitures.  The weighted-average vesting period for all options outstanding is approximately 1.4 years.  The Company issued 110,000 options with a weighted-average grant date fair value of $15.28 per share and a weighted-average exercise price of $34.60 per share during the twelve weeks ended July 10, 2011.

During the twenty-eight weeks ended July 8, 2012, the Company issued 97,000 options with a weighted-average grant date fair value of $14.60 per share and a weighted-average exercise price of $35.44 per share.  Compensation expense for these options is recognized over the remaining weighted-average vesting period for all options outstanding which is approximately 1.4 years.  The Company issued 133,000 options with a weighted-average grant date fair value of $14.40 per share and a weighted-average exercise price of $32.75 per share during the twenty-eight weeks ended July 10, 2011.

The fair value of options at the grant date was estimated utilizing the Black-Scholes multiple option-pricing model with the following weighted-average assumptions for the periods presented:

N/A - Not applicable

Restricted Stock

The Company did not issue any shares of restricted stock during the twelve and twenty-eight weeks ended July 8, 2012 or during the twelve and twenty-eight weeks ended July 10, 2011.  Compensation expense for the aggregate 3,000 shares of non-vested common stock outstanding at July 8, 2012 is recognized over the remaining vesting period, less expected forfeitures.  The remaining weighted-average vesting period is approximately 0.6 years.  These awards vest in installments over four years on the anniversary dates.

Time-Based RSUs

During the twelve weeks ended July 8, 2012, the Company granted 32,000 time-based restricted stock units (“RSUs”) to employees and non-employee directors under the Second Amended and Restated 2007 Performance Incentive Plan (the “Stock Plan”) with a weighted-average grant date fair value of $32.31.  The fair value of each RSU granted is equal to the market price of the Company’s stock at the date of grant.  Compensation expense for RSUs is recognized over the vesting period, less expected forfeitures.

The weighted-average vesting period for all RSUs outstanding is approximately 1.6 years.  The RSUs granted to employees vest in equal installments over three to four years on the anniversary date and, upon vesting, the Company issues one share of the Company’s common stock for each RSU.  The RSUs granted to non-employee directors are scheduled to vest in three equal installments on the first, second, and third anniversaries of the date of grant and the shares underlying the units will be distributed upon vesting.  The Company granted 40,000 RSUs under the Stock Plan with a weighted-average grant date fair value of $34.61 during the twelve weeks ended July 10, 2011.

During the twenty-eight weeks ended July 8, 2012, the Company granted 63,000 RSUs under the Stock Plan with a weighted-average grant date fair value of $33.84.  The fair value of each RSU granted is equal to the market price of the Company’s stock at date of grant.  Compensation expense for the RSUs is recognized over the remaining weighted-average vesting period, less expected forfeitures, for all RSUs outstanding which is approximately 1.6 years.  The Company granted 43,000 RSUs under the Stock Plan with a weighted-average grant date fair value of $33.77 during the twenty-eight weeks ended July 10, 2011.

Performance-Based RSUs

During the twenty-eight weeks ended July 8, 2012 and July 10, 2011, the Company granted no performance based restricted stock units (“PSUs”) under the Stock Plan.  PSUs are subject to company performance metrics based on Total Shareholder Return and measure the overall stock price performance of the Company to the stock price performance of a selected industry peer group, thus resulting in a market condition.  The actual number of PSUs subject to the awards will be determined at the end of the performance period based on the performance metrics.  The fair value of the PSUs was calculated using the Monte Carlo valuation method.  This method utilizes multiple input variables to determine the probability of the Company achieving the market condition and the fair value of the awards.  These awards have a three-year performance period and are classified as equity because each unit is convertible into one share of the Company’s common stock upon vesting.  Compensation expense is recognized on a straight-line basis over the requisite service period (or until an employee’s eligible retirement date, if earlier).