12. SHARE-BASED COMPENSATION

The Company recognizes the cost of all employee share-based awards on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures.

The Company issues stock options, restricted shares, restricted share units and shares with performance features to employees under share-based compensation plans. Stock options are issued at the current market price, have a three-year vesting period and a contractual term of 7 years.

Compensation expense for restricted shares, including shares with performance features, is measured at fair value on the date of grant based on the number of shares granted and the quoted market price of the Company’s common stock. Such value is recognized as expense over the vesting period of the award, net of estimated forfeitures.

Compensation expense for restricted share units with performance features and a market condition is measured at fair value, subject to the market condition on the date of grant and based on the number of shares expected to vest subject to the performance condition. Such value is recognized as expense over the vesting period of the award, net of estimated forfeitures.

Compensation expense related to the Company’s share-based payment awards totaled $6.2 million and $7.9 million for the three months ended April 1, 2017 and April 2, 2016, respectively.

Stock Options

The Company grants stock options to certain domestic and international employees. These options are subject to transfer restrictions and risk of forfeiture until earned by continuing employment. Stock options are issued at the current market price and have a three-year vesting period and a contractual term of 7 years.

The Company utilizes the Trinomial lattice pricing model to estimate the fair value of options granted. The Company believes this model provides the best estimate of fair value due to its ability to incorporate inputs that change over time, such as volatility and interest rates and to allow for actual exercise behavior of option holders.

Expected volatilities are based on a term structure of implied volatility, which assumes changes in volatility over the life of an option. The Company utilizes historical optionee behavioral data to estimate the option exercise and termination rates that are used in the valuation model. The expected term represents an estimate of the period of time options are expected to remain outstanding. The range of risk-free rates is based on a forward curve of interest rates at the time of option grant.

A summary of award activity under stock option plans as of April 1, 2017 and changes therein during the three month period then ended are as follows:


		Weighted		Weighted Average	Aggregate
		Average Exercise		Remaining	Intrinsic Value
	Shares	Price		Contractual Term	(In thousands)
Outstanding December 31, 2016	720,160	$	15.26	2.5	$	5,281
Exercised	(100,000)		8.10			1,274
Outstanding at April 1, 2017	620,160	$	16.42	2.5	$	6,099

Vested or expected to vest at April 1, 2017	609,345	$	16.11	2.5	$	6,097

Exercisable at April 1, 2017	533,234	$	13.58	2.1	$	6,083

As of April 1, 2017, there were approximately 0.1 million nonvested stock options. The weighted average grant date fair value per award for nonvested stock options was $15.69.

As of April 1, 2017, there was $0.9 million of total unrecognized compensation cost related to nonvested stock options granted under the Company’s stock option plans. That expense is expected to be recognized over a weighted average period of 1.0 year. The total fair value of shares vested during the three month periods ended April 1, 2017 and April 2, 2016 was $0.6 million and $0.7 million, respectively.

Restricted Stock

In 2017, the Company granted 343,886 performance shares that vest on the third anniversary of the grant date. The number of performance shares earned will vary from zero to 200% of the number of awards granted depending on the Company’s Total Shareholder Return (“TSR”) ranking relative to the TSR’s of the Bloomberg Intelligence Global Luxury Goods Index constituents. The performance shares have a grant date fair value of $13.4 million that was calculated using a Monte Carlo simulation model.

In 2016, the Company granted 452,922 performance shares that vest on the third anniversary of the grant date. The number of performance shares earned will vary from zero to 200% of the number of awards granted depending on the Company’s TSR ranking relative to the TSR’s of the S&P Mid-Cap 400 constituents as well as an earnings-based performance condition. The performance shares have a grant date fair value of $11.8 million that was calculated using a Monte Carlo simulation model.


	Three Months Ended
Valuation Assumptions:	April 1, 2017		April 2, 2016
Weighted-average fair value	$	39.10	$	25.99
Expected volatility		48.6%		42.5%
Dividend yield		—		—
Risk-free rate		1.5%		1.0%
Weighted-average expected annual forfeiture		3.6%		3.6%

A summary of award activity under restricted stock plans as of April 1, 2017 and changes therein during the three month period then ended are as follows:


		Weighted
		Average Grant
	Shares	Date Fair Value
Nonvested stock at December 31, 2016	2,880,155	$	36.33
Granted	1,081,910		28.63
Vested (a)	(527,997)		46.01
Cancelled (a)	(356,307)		46.24
Nonvested stock at April 1, 2017	3,077,761	$	30.81

Expected to vest as of April 1, 2017 (b)	2,192,491	$	31.75

^(a)

Includes market share units granted to a group of key executives with the vesting of such units measured by the performance of the Company’s stock price over the vesting period.

^(b)

Excludes the potential impact of the performance share multiplier, which will vary from 30% to 200% of the number of market share units awarded depending on the actual performance of the Company’s stock price over the vesting periods and zero to 200% of the number of LTIP awards granted depending on the Company’s TSR relative to the TSR of the S&P Mid-Cap 400 Index.

As of April 1, 2017, there was $43.1 million of total unrecognized compensation cost related to nonvested stock awards granted under restricted stock plans. That expense is expected to be recognized over a weighted average period of 2.2 years. The total fair value of shares vested during the three month periods ended April 1, 2017 and April 2, 2016 was $24.3 million and $3.7 million, respectively.