STOCK-BASED COMPENSATION

Stock-based compensation cost recognized in operating results (included in selling, general, and administrative expenses) for the three and nine months ended September 28, 2014 was $1.4 million and $4.3 million ($1.4 million and $4.2 million, net of tax), respectively. For the three and nine months ended September 29, 2013, the total compensation expense was $1.3 million and $5.1 million ($1.2 million and $5.0 million, net of tax), respectively. The associated actual tax benefit realized for the tax deduction from option exercises of share-based payment units and awards released equaled $0.1 million and $0.4 million for the nine months ended September 28, 2014 and September 29, 2013, respectively.

On February 27, 2014, restricted stock units (RSUs) were awarded to certain key employees as part of the LTIP 2014 plan. The number of shares for these units varies based on the growth of our earnings before interest, taxes, depreciation, and amortization (EBITDA) during the January 2014 to December 2016 performance period. The final value of these units will be determined by the number of shares earned. The value of these units is charged to compensation expense on a straight-line basis over the vesting period with periodic adjustments to account for changes in anticipated award amounts and estimated forfeitures rates. The weighted average price for these RSUs was $14.90 per share. Compensation expense of $0.2 million was recognized in connection with these RSUs for the nine months ended September 28, 2014. As of September 28, 2014, total unamortized compensation expense for this grant was $0.9 million. As of September 28, 2014, the maximum achievable RSUs outstanding under this plan are 153,820 units. These RSUs reduce the shares available to grant under the 2004 Plan.

On February 27, 2013, RSUs were awarded to certain key employees as part of the LTIP 2013 plan. These awards have a market condition. The number of shares for these units varies based on the relative ranking of our total shareholder return (TSR) against the TSRs of the constituents of the Russell 2000 Index during the January 2013 to December 2015 performance period. The final value of these units will be determined by the number of shares earned. The value of these units is charged to compensation expense on a straight-line basis over the vesting period with periodic adjustments to account for changes in anticipated award amounts and estimated forfeitures rates. The grant date fair value for these RSUs was $11.91 per share. Additional RSUs related to the LTIP 2013 plan were awarded on May 28, 2013, with a grant date fair value of $11.56 per share. Compensation expense of $63 thousand and $29 thousand was recognized in connection with these RSUs for the nine months ended September 28, 2014 and September 29, 2013, respectively. As of September 28, 2014, total unamortized compensation expense for these grants was $0.1 million. As of September 28, 2014, the maximum achievable RSUs outstanding under this plan are 26,400 units. These RSUs reduce the shares available to grant under the 2004 Plan.

On May 2, 2013 a cash-based performance award was awarded to our CEO under the terms of our LTIP 2013 plan. Our relative TSR performance determines the payout as a percentage of an established target cash amount of $0.4 million. Because the final payout of the award is made in cash, the award is classified as a liability and the fair value is marked-to-market each reporting period. As of September 28, 2014, the fair value of the award is $0.43 per dollar of the target cash amount awarded. The value of this award is charged to compensation expense on a straight-line basis over the vesting period. For the first nine months of 2014, $31 thousand was charged to compensation expense. The associated liability is included in Accrued Compensation and Related Taxes in the accompanying Consolidated Balance Sheets.

To determine the fair value of the cash-based performance award as of September 28, 2014, we used a Monte Carlo simulation using the following assumptions: (i) expected volatility of 44.32%, (ii) risk-free rate of 0.23%, and (iii) an expected dividend yield of zero.

Stock Options

Option activity under the principal option plans as of September 28, 2014 and changes during the nine months ended September 28, 2014 were as follows:



	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 29, 2013	2,450,660		$	17.70	4.35	$	4,285
Granted	212,080		14.78
Exercised	(64,237	)	9.11
Forfeited or expired	(232,333	)	17.14
Outstanding at September 28, 2014	2,366,170		$	17.72	4.27	$	1,738
Vested and expected to vest at September 28, 2014	2,315,191		$	17.84	4.16	$	1,667
Exercisable at September 28, 2014	1,939,183		$	18.86	3.29	$	1,299

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the third quarter of fiscal 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 28, 2014. This amount changes based on the fair market value of our stock. The total intrinsic value of options exercised for the nine months ended September 28, 2014 and September 29, 2013 was $0.3 million and $0.7 million, respectively.

As of September 28, 2014, $1.4 million of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.7 years.

The fair value of share-based payment units was estimated using the Black-Scholes option pricing model. The table below presents the weighted-average expected life in years. The expected life computation is based on historical exercise patterns and post-vesting termination behavior. Volatility is determined using changes in historical stock prices. The interest rate for periods within the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions and weighted-average fair values were as follows:



Nine months ended	September 28, 2014		September 29, 2013
Weighted-average fair value of grants	6.41		5.46
Valuation assumptions:
Expected dividend yield	0.00	%	0.00	%
Expected volatility	48.09	%	50.79	%
Expected life (in years)	7.68		5.08
Risk-free interest rate	1.465	%	0.835	%

Restricted Stock Units

Nonvested restricted stock units as of September 28, 2014 and changes during the nine months ended September 28, 2014 were as follows:



	Number of Shares		Weighted- Average Vest Date (in years)	Weighted- Average Grant Date Fair Value
Nonvested at December 29, 2013	852,508		0.64	$	17.36
Granted	349,040			$	14.38
Vested	(196,686	)		$	14.74
Forfeited	(53,536	)		$	13.00
Nonvested at September 28, 2014	951,326		0.80	$	17.06
Vested and expected to vest at September 28, 2014	902,847		0.75
Vested and deferred at September 28, 2014	61,250		—

The total fair value of restricted stock awards vested during the first nine months of 2014 was $2.9 million as compared to $4.2 million in the first nine months of 2013. As of September 28, 2014, there was $4.2 million of unrecognized stock-based compensation expense related to nonvested restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

Other Compensation Arrangements

On March 15, 2010, we initiated a plan in which time-vested cash unit awards were granted to eligible employees. The time-vested cash unit awards under this plan vest evenly over two or three years from the date of grant. The total amount accrued related to the plan equaled $0.6 million as of September 28, 2014, of which $0.3 million and $0.9 million was expensed for the three and nine months ended September 28, 2014. The total amount accrued related to the plan equaled $0.7 million as of September 29, 2013, of which $0.3 million and $0.9 million was expensed for the three and nine months ended September 29, 2013. The associated liability is included in Accrued Compensation and Related Taxes in the accompanying Consolidated Balance Sheets.