SHAREHOLDERS' EQUITY

9 Months Ended

Sep. 28, 2019

Stockholders' Equity Note [Abstract]

SHAREHOLDERS’ EQUITY

Repurchase of Common Stock

At a meeting of the Board of Directors on July 24, 2018, authorization was granted to purchase up to $250.0 million of shares which replaced the prior repurchase authorization to repurchase 3.0 million shares. For the three months ended September 28, 2019, the Company repurchased and retired 1,282,037 shares of its common stock at an average cost of $73.43 per share for a total cost of $94.2 million. For the three months ended September 29, 2018, the Company repurchased and retired 77,533 shares of common stock at an average cost of $79.93 per share for a total cost of $6.2 million. For the nine months ended September 28, 2019, there were 2,013,782 shares or $150.1 million of shares repurchased under this program at an average cost of $74.52 per share. As of September 28, 2019, there was approximately $46.8 million in common stock available for repurchase under the program. For the nine months ended September 29, 2018, the Company acquired and retired 1,007,538 shares of its common stock at an average cost of $77.74 per share for a total cost of $78.3 million under a prior repurchase program. At a meeting of the Board of Directors on October 25, 2019, the July 2018 repurchase authorization was extinguished and replaced with an authorization to purchase up to $250.0 million of shares.

Share-Based Compensation

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

The Company recognized approximately $2.6 million and $3.3 million in share-based compensation expense for the three months ended September 28, 2019 and September 29, 2018, respectively. Share-based compensation expense was $10.0 million and $10.5 million for the nine months ended September 28, 2019 and September 29, 2018, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for share-based compensation expense was $0.5 million and $0.8 million for the three months ended September 28, 2019 and September 29, 2018, respectively. The total income tax benefit recognized in the Condensed Consolidated Statements of Income for share-based compensation expense was $2.1 million and $2.5 million for the nine months ended September 28, 2019 and September 29, 2018, respectively. 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 September 28, 2019, total unrecognized compensation cost related to share-based compensation awards was approximately $21.6 million, net of estimated forfeitures, which the Company expects to recognize over a weighted average period of approximately 2.2 years.

Approximately 2.1 million shares were available for future grant under the 2018 Equity Incentive Plan at September 28, 2019.

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 nine months ended September 28, 2019 and September 29, 2018, expired and canceled shares were immaterial.

The following table presents share-based compensation activity for the nine months ended September 28, 2019 and September 29, 2018 (in millions):



	September 28, 2019			September 29, 2018
Total Intrinsic Value of Share-Based Incentive Awards Exercised	$	5.1		$	4.9
Income Tax (Expense) Benefit from the Exercise of SARs	(0.1		)	0.1
Total Fair Value of Share-Based Incentive Awards Vested	5.4			4.0

The following table presents assumptions used in the Company's Black-Scholes valuation related to grants of SARs:



	2019			2018
Per share weighted average fair value of grants	$	20.84		$	22.73
Risk-free interest rate	2.4		%	2.9		%
Expected life (years)	7.0			7.0
Expected volatility	25.0		%	27.8		%
Expected dividend yield	1.5		%	1.4		%

The average risk-free interest rate is based on the US Treasury security rate 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.

The following table presents a summary of share-based incentive plan grant activity the nine months ended September 28, 2019.



Number of Shares Under SARs	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in millions)
Outstanding as of December 29, 2018	1,539,368		$	69.31	5.6	$	16.0
Granted	188,809		81.81
Exercised	(341,514	)	66.13
Forfeited	(23,183	)	76.89
Expired	(4,068	)	74.37
Outstanding as of September 28, 2019	1,359,412		$	71.70	4.3	$	6.3
Exercisable as of September 28, 2019	943,239		$	69.26	2.4	$	5.5

Compensation expense recognized related to SARs was $1.9 million for the nine months ended September 28, 2019.

As of September 28, 2019, there was $7.1 million of unrecognized compensation cost related to non-vested SARs that is expected to be recognized as a charge to earnings over a weighted average period of 3.6 years.

The number of SARs 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, death or disability.

The following table presents a summary of RSA award activity for the nine months ended September 28, 2019:



	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (Years)
Unvested RSAs as of December 29, 2018	15,660		$	74.38	0.4
Granted	15,148		80.29
Vested	(15,660	)	74.38
Unvested RSAs as of September 28, 2019	15,148		$	80.29	0.6

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 $0.9 million for the nine months ended September 28, 2019.

As of September 28, 2019, there was $0.8 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 0.6 years.

The following table presents a summary of RSU award activity for the nine months ended September 28, 2019:



	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (Years)
Unvested RSUs as of December 29, 2018	234,824		$	69.78	1.6
Granted	93,428		78.98
Vested	(136,138	)	64.45
Forfeited	(12,230	)	75.78
Unvested RSUs as of September 28, 2019	179,884		$	78.18	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 $4.9 million for the nine months ended September 28, 2019.

As of September 28, 2019, there was $8.8 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 units ("PSU") 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 and vest 3 years from the grant date. The PSUs have performance criteria based on a return on invested capital metric or they have performance criteria using returns relative to the Company's peer group. 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 were as follows:



	September 28, 2019		September 29, 2018
Risk-free interest rate	2.3	%	2.7	%
Expected life (years)	3.0		3.0
Expected volatility	25.0	%	25.0	%
Expected dividend yield	1.5	%	1.4	%

The following table presents a summary of PSU activity for the nine months ended September 28, 2019:



	Shares		Weighted Average Fair Value at Grant Date		Weighted Average Remaining Contractual Term (Years)
Unvested PSUs as of December 29, 2018	167,840		$	71.71	1.8
Granted	43,683		85.54
Vested	(60,553	)	65.85
Forfeited	(56,484	)	66.61
Unvested PSUs as of September 28, 2019	94,486		$	86.35	2.1

Compensation expense for awards granted is recognized based on the grant issuance 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 $2.3 million for the nine months ended September 28, 2019. Total unrecognized compensation expense for all PSUs granted as

of September 28, 2019 is estimated to be $4.9 million which is expected to be recognized as a charge to earnings over a weighted average period of 2.1 years.