NOTE 6 – STOCK-BASED COMPENSATION

Stock-based compensation expense reflects the fair value of stock-based awards measured at the grant date and is recognized over the requisite service period.

Annually, we grant restricted stock to our non-employee directors. These director awards are granted the day following our Annual Meeting of Shareholders during the second quarter of each fiscal year and vest the day before our Annual Meeting of Shareholders in the following year. The fair value of these awards is determined by using the current market price of our common stock on the grant date.

Annually, upon approval by our Compensation Committee, we grant stock options and restricted stock units to certain employees. We also grant stock options to certain new employees throughout the year. These awards are non-performance-based subject only to time-based vesting, and vest in three equal annual installments beginning one year after the grant date. The fair value of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options.

In the first quarter of 2015, we granted performance-based stock options and restricted stock units to certain executives. If the applicable performance goals or strategic objectives are achieved, these awards will vest in three equal annual installments beginning one year after the grant date. The fair value of each of these stock-based awards is determined by using (a) the current market price of our common stock on the grant date in the case of restricted stock units or (b) the Black-Scholes option valuation model in the case of stock options. The related stock-based compensation expense is recognized over the requisite service period, taking into account the probability that we will satisfy the performance goals or strategic objectives.

In the first quarter of 2015, we also granted performance-based stock options and restricted stock units that include a three-year market condition. The fair value of these awards is determined by using the Monte Carlo Simulation valuation model. We expense these market condition awards over the three-year vesting period regardless of the value the award recipients ultimately receive.

The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The weighted average fair value of the stock options and restricted stock units that were granted during the first quarter of 2015 and valued based on the Monte Carlo Simulation valuation model was $19.97 and $44.45, respectively. The assumptions used to estimate the fair value of the performance-based stock options and restricted stock units under the Monte Carlo Simulation model are as follows:


	Three Months Ended
	March 28, 2015			March 29, 2014
Risk-free interest rate		0.95% - 1.48	%		—
Expected dividend yield		0	%		—
Expected option life		4 years			—
Expected volatility		44.5	%		—
Weighted-average expected volatility		44.5	%		—

For stock options granted during the three months ended March 28, 2015 and March 29, 2014 valued using the Black-Scholes option-pricing model, we used the following assumptions:


	Three Months Ended
	March 28, 2015			March 29, 2014
Risk-free interest rate		0.99% - 1.06	%		1.10	%
Expected dividend yield		0	%		0	%
Expected option life		3 years			4 years
Expected volatility		42.3	%		42.5	%
Weighted-average expected volatility		42.3	%		42.5	%

The weighted-average grant-date fair value of the stock options granted during the three months ended March 28, 2015 and March 29, 2014 and valued using the Black-Scholes option pricing model was $17.48 and $19.79 per option, respectively.

A summary of stock option activity and weighted-average exercise prices for the three months ended March 28, 2015 follows:


	Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value as of March 28, 2015
Outstanding at January 1, 2015		898,429		$	44.40
Granted		440,553			59.66
Forfeited		(37,523	)		55.28
Exercised		(59,749	)		32.67

Outstanding at March 28, 2015		1,241,710		$	50.04		5.1	$	11,185


Options exercisable at March 28, 2015		586,671		$	42.51		3.7	$	9,660

The total intrinsic value of stock options exercised during the three months ended March 28, 2015 and March 29, 2014 was $1.6 million and $0.9 million, respectively. The fair value of stock options vested during the three months ended March 28, 2015 and March 29, 2014 was $3.8 million and $3.6 million, respectively.

The following table summarizes the restricted stock and restricted stock unit activity and weighted average grant-date fair values for the three months ended March 28, 2015:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2015		13,955		$	43.57
Granted		4,109			59.97
Forfeited		(1,397	)		59.97
Vested		(469	)		55.83

Non-vested at March 28, 2015		16,198		$	47.08

We recorded total stock-based compensation expense of $1,198 and $1,246 for the three months ended March 28, 2015 and March 29, 2014, respectively.

As of March 28, 2015, there was $11.2 million of total unrecognized stock-based compensation expense related to non-vested stock-based compensation arrangements. The expense is expected to be recognized over a weighted average period of 2.5 years.