Stock-Based Compensation

We have given consideration to the two-for-one stock split of our common shares effective June 1, 2017 including all common and per share data.

Our shareholders approved the 2014 Omnibus Stock Plan (the “2014 Stock Plan”) at our annual meeting of shareholders on May 20, 2014. The 2014 Stock Plan replaced the expired 2004 Omnibus Stock Plan (the “2004 plan”) previously approved by the shareholders in 2004. The 2014 Stock Plan is administered by the Compensation Committee of the Board of Directors and has a term of ten years. All directors of the Company and employees of the Company and its subsidiaries are eligible to participate in the 2014 Stock Plan. The 2014 Stock Plan (similar to the 2004 plan) continues the maintenance of the Employee Stock Purchase Plan, as well as provisions for the grant of stock options and other stock-based incentives. The 2014 Stock Plan provides for the grant of five percent of the number of the Company’s common shares outstanding as of the first day of each fiscal


H.	Stock-Based Compensation (continued)

year plus the number of common shares that were available for grant of awards, but not granted, in prior years. In no event, however, may the number of common shares available for the grant of awards in any fiscal year exceed ten percent of the common shares outstanding as of the first day of that fiscal year. Common shares subject to an award that is forfeited, terminated, or canceled without having been exercised are generally added back to the number of shares available for grant under the 2014 Stock Plan.

Stock-based compensation expense under all share-based payment plans -- our Employee Stock Purchase Plan, stock option plans, stock-settled stock appreciation rights and restricted stock units -- included in the results of operations follows:



	Three months ended				Six Months Ended
	July 1, 2017		July 2, 2016		July 1, 2017		July 2, 2016
Compensation expense, all share-based payment plans	$	1,462	$	678	$	2,448	$	1,324

Stock-based compensation consisted of the following:

Employee Stock Purchase Plan--Under the Employee Stock Purchase Plan, all full-time employees with one year of service are eligible to purchase, through payroll deduction, common shares. Employee purchases under the Employee Stock Purchase Plan are at 85% of the fair market value of the common shares--a 15% discount. We recognize compensation costs as payroll deductions are made. The 15% discount of total shares purchased under the plan resulted in compensation cost of $415 being recognized for the six months ended July 1, 2017 and $337 for the six months ended July 2, 2016.

Stock Option Plans--The stock options outstanding were awarded under a graded vesting schedule, measured at fair value, and have a term of ten years. Compensation costs for stock options are recognized over the requisite service period on the straight-line recognition method. Compensation cost recognized for stock options was $395 for the six months ended July 1, 2017 and $270 for the six months ended July 2, 2016.

Stock-Settled Stock Appreciation Rights--During the six months ended July 1, 2017, the Compensation Committee awarded 152,000 stock-settled stock appreciation rights (“SSARs”) to certain management employees, which vest ratably over five years. A SSAR is an award that allows the recipient to receive common shares equal to the appreciation in the fair market value of our common shares between the date the award was granted and the conversion date of the shares vested.


H.	Stock-Based Compensation (continued)

The following table summarizes our SSARs as of July 1, 2017.



Stock-Settled Stock Appreciation Rights	Number of Rights		Weighted- Average Award Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2017	743,662		$	2.75
Granted	152,000		3.57
Forfeited	—		—
Vested	(240,546	)	2.59
Unvested, July 1, 2017	655,116		$	3.00	2.7 years	$	1,301	$	11,530

Employee SSARs	655,116		$	3.00	2.7 years	$	1,301	$	11,530

Compensation costs for SSARs are determined using a fair-value method and amortized over the requisite service period. Compensation expense for SSARs was $757 for the six months ended July 1, 2017 and $292 for the six months ended July 2, 2016.

Restricted Stock Units--During the six months ended July 1, 2017, the Compensation Committee awarded 80,350 performance-based restricted stock units to certain directors and management employees. The Compensation Committee made similar awards in prior periods. The awards vest over specified periods. The following table summarizes restricted stock units as of July 1, 2017.



Restricted Stock Units	Number of Stock Units		Weighted- Average Grant Date Value		Weighted- Average Remaining Contractual Life	Unrecognized Compensation Cost		Aggregate Intrinsic Value
Unvested, January 1, 2017	304,958		$	13.22
Granted	80,350		17.01
Forfeited	—		—
Vested	(49,964	)	11.38

Unvested, July 1, 2017	335,344		$	14.40	2.8 years	$	2,604	$	5,902

Compensation cost for restricted stock awards is determined using a fair-value method and amortized on the straight-line recognition method over the requisite service period. Compensation expense on restricted stock awards totaled $881 for the six months ended July 1, 2017 and $425 for the six months ended July 2, 2016.

We estimated the fair value of each stock-based award on the date of grant using a binomial option-pricing model. The binomial model considers a range of assumptions related to volatility, risk-free interest rate and employee

H. Stock-Based Compensation (continued)

exercise behavior. Expected volatilities utilized in the binomial model are based on historical volatility of our stock prices and other factors. Similarly, the dividend yield is based on historical experience and expected future changes. The binomial model also incorporates exercise assumptions based on an analysis of historical data. The expected life of the stock-based awards is derived from the output of the binomial model and represents the period of time that awards granted are expected to be outstanding.

The fair values of stock-based awards granted were estimated at the dates of grant with the following weighted-average assumption.



	Six Months Ended
	July 1, 2017		July 2, 2016
Volatility rate	10.3	%	10.6	%
Risk-free interest rate	2.2	%	1.8	%
Expected dividend yield	.7	%	.7	%
Expected life of awards (years)	8.9		9.5

General Stock Option Information--The following table summarizes activity under the stock option plans for the six months ended July 1, 2017.



Stock Options	Number of Options Outstanding		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1, 2017	1,599,296		$	12.49
Granted	148,500		17.60
Exercised	(74,420	)	10.40
Forfeited	(64,574	)	12.75
Outstanding, July 1, 2017	1,608,802		$	13.05	6.7 years	$	7,320

Exercisable, July 1, 2017	869,302		$	11.23	5.4 years	$	5,537

As of July 1, 2017, there was approximately $1,438 of unrecognized compensation cost related to stock options outstanding. The cost is expected to be recognized over a weighted-average period of 2.3 years. “Intrinsic value” is defined as the amount by which the market price of a common share exceeds the exercise price of an option.

Common shares are issued from treasury upon the exercise of stock options, SSARs, restricted stock units or purchases under the Employee Stock Purchase Plan.