Share-based Arrangements

6 Months Ended

Jun. 28, 2019

SHARE-BASED ARRANGEMENTS

The Company accounts for stock options, restricted stock awards, restricted stock units and performance shares as equity awards and measures the cost of all share-based payments, including stock options, at fair value on the grant date and recognizes this cost in the statement of operations. The Company also has an employee stock purchase plan which is accounted for as a liability award.

Compensation expense for stock options, restricted stock awards and restricted stock units is recognized on a straight-line basis over the vesting period of the awards. Share-based compensation expense recorded for continuing operations for the three-month and six-month fiscal periods ended June 28, 2019 was $1.9 million and $3.5 million, respectively. Share-based compensation expense recorded for continuing operations for the three-month and six-month fiscal periods ended June 29, 2018, was $2.0 million and $3.3 million, respectively. These amounts were included in selling, general and administrative expense on the Company's Condensed Statement of Operations.

Share-based compensation expense recorded for discontinued operations for the three-month fiscal period ended June 28, 2019 was not material. Share-based compensation expense recorded for discontinued operations for the six-month fiscal period ended June 28, 2019 was $0.3 million. Share-based compensation expense recorded for discontinued operations for the three-month and six-month fiscal periods ended June 29, 2018, was $0.3 million and $0.5 million, respectively. These amounts were included in earnings from discontinued operations, net of tax on the Company's Condensed Statement of Operations.

As a result of the Company entering into a definitive agreement to sell its Distribution segment and the closing of the sale being considered probable, the vesting dates of all outstanding unvested stock options and restricted stock awards for certain Distribution employees were accelerated to vest on the anticipated closing date. Most of these stock options and awards would not have vested prior to the closing date; therefore, the related stock-based compensation expense previously recognized through the modification date was reduced to zero and a new fair value of the options and awards was established on the date the Company entered into the definitive agreement. The expense will be recognized ratably from the date of signing the definitive agreement to the anticipated closing date of the sale. While the acceleration of these awards is subject to Board of Directors approval, the Company estimates $2.8 million in incremental stock-based compensation to be recorded in 2019 in earnings from discontinued operations due to the acceleration of vesting. Of this amount, $0.2 million was recorded in the three-month fiscal period ended June 28, 2019.

From time-to-time, the Company has issued stock awards with market and performance based conditions. Throughout the course of the requisite service period, the Company monitors the level of achievement compared to the target and adjusts the number of shares expected to be earned, and the related compensation expense recorded thereafter, to reflect the most probable outcome. The number of shares earned under an award granted in 2016 has been determined at a 130% achievement level, representing 925 shares delivered in 2019. The number of shares earned were pro-rated to reflect the number of days the participant was employed by the Company during the performance period. There are no outstanding awards with these conditions that have not been settled. Compensation expense for these awards for the three-month and six-month fiscal periods ended June 28, 2019, and June 29, 2018, was not material.

Stock option activity was as follows:



	For the Three Months Ended				For the Six Months Ended
	June 28, 2019				June 28, 2019
	Options		Weighted - average exercise price		Options		Weighted - average exercise price
Options outstanding at beginning of period	1,097,087		$	49.04	935,252		$	45.91
Granted	—		$	—	194,470		$	61.02
Exercised	(33,417	)	$	38.43	(63,139	)	$	33.38
Forfeited or expired	(15,040	)	$	57.30	(17,953	)	$	58.01
Options outstanding at June 28, 2019	1,048,630		$	49.26	1,048,630		$	49.26

17. SHARE-BASED ARRANGEMENTS (CONTINUED)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The following table indicates the weighted-average assumptions used in estimating fair value:



	For the Six Months Ended
	June 28, 2019			June 29, 2018
Expected option term (years)	4.9			4.9
Expected volatility	19.4		%	18.1		%
Risk-free interest rate	2.5		%	2.6		%
Expected dividend yield	1.3		%	1.5		%
Per share fair value of options granted		$11.18			$10.65

Restricted stock award and restricted stock unit activity was as follows:



	For the Three Months Ended				For the Six Months Ended
	June 28, 2019				June 28, 2019
	Restricted Stock		Weighted- average grant date fair value		Restricted Stock		Weighted- average grant date fair value
Restricted Stock outstanding at beginning of period	142,001		$	54.25	143,697		$	49.97
Granted	19,029		$	60.48	63,804		$	60.86
Vested	(18,525	)	$	59.67	(64,262	)	$	50.93
Forfeited or expired	(4,625	)	$	57.61	(5,359	)	$	57.59
Restricted Stock outstanding at June 28, 2019	137,880		$	54.27	137,880		$	54.27