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. There were no performance-based stock options or restricted stock units granted in the second or third quarter of 2015.

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 that the award recipients ultimately receive. There were no performance-based stock options or restricted stock units granted in the second or third quarter of 2015.

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 nine months 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 granted during the first nine months of 2015 under the Monte Carlo Simulation model are as follows:


	Nine Months Ended
	September 26, 2015	September 27, 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 nine months ended September 26, 2015 and September 27, 2014 valued using the Black-Scholes option-pricing model, we used the following assumptions:


	Nine Months Ended
	September 26, 2015	September 27, 2014
Risk-free interest rate	0.80% - 1.09%	0.95% - 1.32%
Expected dividend yield	0%	0%
Expected option life	3 years	3 - 4 years
Expected volatility	42.3% - 48.5%	42.5% - 45.4%
Weighted-average expected volatility	43.1%	42.6%

Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the expected lives of the options. The risk-free interest rate was based on the yields of U.S. zero coupon issues and U.S. Treasury issues, with a term equal to the expected life of the option being valued.

The weighted-average grant-date fair value of the stock options granted during the nine months ended September 26, 2015 and September 27, 2014 and valued using the Black-Scholes option pricing model was $16.33 and $19.48 per option, respectively.

A summary of stock option activity and weighted-average exercise prices for the nine months ended September 26, 2015 follows:


	Options			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value as of September 26, 2015
Outstanding at January 1, 2015		898,429		$	44.40
Granted		465,005			58.57
Forfeited		(97,251	)		55.06
Exercised		(66,786	)		33.11

Outstanding at September 26, 2015		1,199,397		$	50.04		4.6	$	1,961


Options exercisable at September 26, 2015		573,736		$	42.49		3.1	$	1,961

The total intrinsic value of stock options exercised during the three months ended September 26, 2015 and September 27, 2014 was $0.1 million and $0.6 million, respectively. For the nine months ended September 26, 2015 and September 27, 2014, the total intrinsic value of stock options exercised was $1.7 million and $1.5 million, respectively. The fair value of stock options vested during the three months ended September 26, 2015 and September 27, 2014 was $0.1 million and $0.0 million, respectively. The fair value of stock options vested during the nine months ended September 26, 2015 and September 27, 2014 was $3.9 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 nine months ended September 26, 2015:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested at January 1, 2015		13,955		$	43.57
Granted		16,892			43.62
Forfeited		(1,397	)		46.16
Vested		(13,349	)		42.99

Non-vested at September 26, 2015		16,101		$	43.88

We recorded total stock-based compensation expense of $1.3 million and $1.2 million for the three months ended September 26, 2015 and September 27, 2014, respectively, and $3.8 million and $3.7 million for the nine months ended September 26, 2015 and September 27, 2014, respectively.

As of September 26, 2015, there was $8.0 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 1.9 years.