SHAREHOLDERS’ EQUITY

Repurchase of Common Stock

The Company acquired and retired 276,804 shares of its common stock in the quarter ended July 1, 2017, at an average cost of $78.42 per share for a total cost of $21.7 million. The repurchases were under the 3.0 million share repurchase program approved by the Company’s Board of Directors in November, 2013. There are approximately 2.0 million shares of the Company's common stock available for repurchase under this program.

Share-Based Compensation

The majority of the Company’s annual share-based incentive awards are made in the fiscal second quarter.

The Company recognized approximately $4.1 million and $3.8 million in share-based compensation expense for the three months ended July 1, 2017 and July 2, 2016, respectively. Share-based compensation expense was $7.1 million for the six months ended July 1, 2017 and July 2, 2016. The total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation expense was $1.6 million and $1.4 million for the three months ended July 1, 2017 and July 2, 2016, respectively. The total income tax benefit recognized in the Consolidated Statements of Income for share-based compensation expense was $2.7 million for the six months ended July 1, 2017 and July 2, 2016. The Company recognizes compensation expense on grants of share-based compensation awards on a straight-line basis over the vesting period of each award. As of July 1, 2017, total unrecognized compensation cost related to share-based compensation awards was approximately $31.3 million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 2.4 years.

Approximately 0.9 million shares were available for future grant under the 2013 Equity Incentive Plan at July 1, 2017.

Options and Stock Appreciation Rights

The Company uses stock settled stock appreciation rights (“SARs”) as a form of share-based incentive awards. SARs are the right to receive stock in an amount equal to the appreciation in value of a share of stock over the base price per share that generally vest over 5 years and expire 10 years from the grant date. All grants are made at prices equal to the fair market value of the stock on the grant date. For the six months ended July 1, 2017 and July 2, 2016, expired and canceled shares were immaterial.

The table below presents share-based compensation activity for the six months ended July 1, 2017 and July 2, 2016 (in millions):



	July 1, 2017		July 2, 2016
Total intrinsic value of share-based incentive awards exercised	$	3.1	$	0.3
Cash received from stock option exercises	0.4		0.5
Income tax benefit (expense) from the exercise of stock options	0.7		(0.1		)
Total fair value of share-based incentive awards vested	4.3		4.8

The assumptions used in the Company's Black-Scholes valuation related to grants for options and SARs were as follows:



	2017			2016
Per share weighted average fair value of grants	$	23.31		$	15.22
Risk-free interest rate	2.1		%	1.4		%
Expected life (years)	7.0			7.0
Expected volatility	28.6		%	29.6		%
Expected dividend yield	1.3		%	1.7		%

The average risk-free interest rate is based on US Treasury security rates in effect as of the grant date. The expected dividend yield is based on the projected annual dividend as a percentage of the estimated market value of the Company's common stock as of the grant date. The Company estimated the expected volatility using a weighted average of daily historical volatility of the Company's stock price over the expected term of the award. The Company estimated the expected term using historical data adjusted for the estimated exercise dates of unexercised awards.

Following is a summary of share-based incentive plan grant activity (options and SARs) for the six months ended July 1, 2017.



Number of Shares Under Options and SARs	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in millions)
Exercisable at December 31, 2016	1,610,499		$	63.16
Granted	194,142		80.70
Exercised	(134,991	)	52.67
Forfeited	(1,180	)	54.61
Expired	(9,485	)	64.21
Outstanding at July 1, 2017	1,658,985		$	66.07	6.1	$	25.4
Exercisable at July 1, 2017	989,761		$	63.93	4.3	$	17.4

Compensation expense recognized related to options and SARs was $2.2 million for the six months ended July 1, 2017.

As of July 1, 2017, there was $12.0 million of unrecognized compensation cost related to non-vested options and SARs that is expected to be recognized as a charge to earnings over a weighted average period of 3.6 years.

The amount of options expected to vest is materially consistent with those outstanding and not yet exercisable.

Restricted Stock Awards and Restricted Stock Units

Restricted stock awards ("RSA") and restricted stock units ("RSU") consist of shares or the rights to shares of the Company's stock. The awards are restricted such that they are subject to substantial risk of forfeiture and to restrictions on their sale or other transfer. As defined in the individual grant agreements, acceleration of vesting may occur under a change in control, or death, disability or normal retirement of the grantee.

Following is a summary of RSA award activity for the six months ended July 1, 2017:



	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSAs at December 31, 2016	19,593		$	57.43	0.4
Granted	13,941		80.70
Vested	(19,593	)	57.43
Unvested RSAs at July 1, 2017	13,941		$	80.70	0.9

RSAs vest on the first anniversary of the grant date, provided the holder of the shares is continuously employed by or in the service of the Company until the vesting date. Compensation expense recognized related to the RSAs was $0.6 million for the six months ended July 1, 2017.

As of July 1, 2017, there was $1.0 million of unrecognized compensation cost related to non-vested RSAs that is expected to be recognized as a charge to earnings over a weighted average period of 0.9 years.

Following is a summary of RSU award activity for the six months ended July 1, 2017:



	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested RSUs at December 31, 2016	277,863		$	69.23	1.7
Granted	75,614		80.46
Vested	(78,625	)	75.15
Forfeited	(1,634	)	67.90
Unvested RSUs at July 1, 2017	273,218		$	70.64	2.1

RSUs vest on the third anniversary of the grant date, provided the holder of the RSUs is continuously employed by the Company until the vesting date. Compensation expense recognized related to the RSUs was $3.3 million for the six months ended July 1, 2017.

As of July 1, 2017, there was $11.4 million of unrecognized compensation cost related to non-vested RSUs that is expected to be recognized as a charge to earnings over a weighted average period of 2.1 years.

Performance Share Units

Performance share unit ("PSU") awards consist of shares or the rights to shares of the Company's stock which are awarded to employees of the Company. These shares are payable upon the determination that the Company achieved certain established performance targets and can range from 0% to 200% of the targeted payout based on the actual results. PSUs have a performance period of 3 years. As set forth in the individual award agreements, acceleration of vesting may occur under a change in control, death or disability. There are no voting rights associated with PSUs until vesting occurs and a share of stock is issued. Some of the PSU awards are valued using a Monte Carlo simulation method as of the grant date while others are valued using the closing market price as of the grant date depending on the performance criteria for the award.

The assumptions used in the Company's Monte Carlo simulation related to grants for performance share units were as follows:



	July 1, 2017		July 2, 2016
Risk-free interest rate	1.6	%	0.9	%
Expected life (years)	3.0		3.0
Expected volatility	24.0	%	23.0	%
Expected dividend yield	1.3	%	1.7	%

Following is a summary of PSU award activity for the six months ended July 1, 2017:



	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (years)
Unvested PSUs at December 31, 2016	133,340		$	65.28	2.0
Granted	48,403		90.80
Vested	(110	)	83.74
Forfeited	(24,705	)	83.21
Unvested PSUs at July 1, 2017	156,928		$	70.31	2.4

Compensation expense for awards granted is recognized based on the Monte Carlo simulation value or the expected payout ratio depending upon the performance criterion for the award, net of estimated forfeitures. Compensation expense recognized related to PSUs was $1.0 million for the six months ended July 1, 2017. Total unrecognized compensation expense for all PSUs granted as of July 1, 2017 is estimated to be $6.9 million recognized as a charge to earnings over a weighted average period of 2.4 years.