Stockholders' Equity and Stock-Based Compensation

12 Months Ended

Sep. 28, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stockholders' Equity and Stock-Based Compensation

Stock Repurchase Program

On June 21, 2016, the Company's Board of Directors authorized the repurchase of up to an additional $500.0 million of the Company's outstanding common stock over the next five years. During fiscal 2017, the Company repurchased 5.3 million shares of its common stock for total consideration of $200.1 million, and in fiscal 2018, the Company repurchased an additional 5.0 million shares of its common stock for a total consideration of $187.3 million under this authorization.

On June 13, 2018, the Board of Directors authorized another share repurchase plan to repurchase up to $500.0 million of the Company's outstanding common stock. This share repurchase plan, which replaced the prior plan, was effective August 1, 2018 and expires on June 13, 2023. Under this authorization, during the fourth quarter of 2018, the Company repurchased 2.3 million shares of its common stock for a total consideration of $88.5 million. During fiscal 2019, the Company repurchased 4.8 million shares of its common stock for total consideration of $200.1 million. As of September 28, 2019, $211.5 million was available under this authorization.

On November 19, 2019, the Board of Directors authorized the Company to repurchase up to $205 million of its outstanding shares, to be in addition to the prior authorization. Pursuant to this authorization, the Company entered into a definitive agreement to conduct a $205 million accelerated share repurchase. On November 25, 2019, the Company initially repurchased 3.3 million shares pursuant to this arrangement, subject to adjustment on the settlement date pursuant to customary terms.

Stock-Based Compensation

Equity Compensation Plans

The Company has one share-based compensation plan pursuant to which awards are currently being issued—the 2008 amended and restated Equity Incentive Plan (“2008 Equity Plan”). The purpose of the 2008 Equity Plan is to provide stock options, restricted stock units and other equity interests in the Company to employees, officers, directors, consultants and advisors of the Company and any other person who is determined by the Board of Directors to have made (or is expected to make) contributions to the Company. The 2008 Equity Plan is administered by the Board of Directors of the Company, and a total of 31.5 million shares were reserved for issuance under this plan. As of September 28, 2019, the Company had 7.0 million shares available for future grant under the 2008 Equity Plan.

The following presents stock-based compensation expense in the Company’s Consolidated Statements of Operations in fiscal 2019, 2018 and 2017:



	2019		2018		2017
Cost of revenues	$	7.1	$	8.3	$	10.7
Research and development	9.2		9.5		11.2
Selling and marketing	10.2		10.3		11.9
General and administrative	35.5		35.6		34.4
Restructuring	—		1.3		—
	$	62.0	$	65.0	$	68.2

Grant-Date Fair Value

The Company uses a binomial model to determine the fair value of its stock options. The Company considers a number of factors to determine the fair value of options including the assistance of an outside valuation adviser. Information pertaining to stock options granted during fiscal 2019, 2018 and 2017 and related assumptions are noted in the following table:



	Years ended
	September 28, 2019			September 29, 2018			September 30, 2017
Options granted (in millions)	1.0			1.7			1.0
Weighted-average exercise price	$	41.36		$	40.76		$	38.07
Weighted-average grant date fair value	$	13.54		$	12.98		$	12.33
Assumptions:
Risk-free interest rates	3.0		%	2.1		%	1.8		%
Expected life (in years)	4.8			4.7			4.7
Expected volatility	34.3		%	35.3		%	36.6		%
Dividend yield	—			—			—

The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the stock options. In projecting expected stock price volatility, the Company uses a combination of historical stock price volatility and implied volatility from observable market prices of similar equity instruments. The Company estimated the expected life of stock options based on historical experience using employee exercise and option expiration data.

Stock-Based Compensation Expense Attribution

The Company uses the straight-line attribution method to recognize stock-based compensation expense for stock options and RSUs. The vesting term of stock options is generally four or five years with annual vesting of 25% and 20% per year, respectively, on the anniversary of the grant date, and RSUs generally vest over three or four years with annual vesting at 33% and 25% per year, respectively, on the anniversary of the grant date.

The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Under ASC 718, the Company has made an accounting policy to estimate forfeitures at the time awards are granted and revises, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on an analysis of historical forfeitures, the Company has determined a specific forfeiture rate for certain employee groups and has applied forfeiture rates ranging from 0% to 7.0% as of September 28, 2019 depending on the specific employee group. This analysis is re-evaluated annually and the forfeiture rate will be adjusted as necessary. Ultimately, the actual stock-based compensation expense recognized will only be for those stock options and RSUs that vest.

Stock-based compensation expense related to stock options was $14.1 million, $14.3 million, and $12.2 million in fiscal 2019, 2018 and 2017, respectively. Stock compensation expense related to stock units, including RSUs, performance stock units ("PSUs") and market stock units ("MSUs") was $43.7 million, $46.5 million, and $51.6 million in fiscal 2019, 2018 and 2017, respectively. The related tax benefit recorded in the Consolidated Statements of Operations was $8.9 million, $11.7 million and $22.6 million in fiscal 2019, 2018 and 2017, respectively. At September 28, 2019, there was $22.4 million and $57.1 million of unrecognized compensation expense related to stock options and RSUs, respectively, to be recognized over a weighted average period of 2.4 years and 1.7 years, respectively.

Share Based Payment Activity

The following table summarizes all stock option activity under the Company’s stock option plans for the year ended September 28, 2019:



	Number of Shares (in millions)		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value (in millions)
Options outstanding at September 29, 2018	6.0		$	32.13	5.9	$	53.3
Granted	1.0		41.36
Canceled/ forfeited	(0.2	)	36.04
Exercised	(1.3	)	25.35			26.1
Options outstanding at September 28, 2019	5.5		$	35.23	6.1	$	78.4
Options exercisable at September 28, 2019	2.7		$	30.58	4.2	$	52.2
Options vested and expected to vest at September 28, 2019 (1)	5.4		$	35.20	6.1	$	78.1


(1)	This represents the number of vested stock options as of September 28, 2019 plus the unvested outstanding options at September 28, 2019 expected to vest in the future, adjusted for estimated forfeitures.

During fiscal 2018 and 2017, the total intrinsic value of options exercised (i.e., the difference between the market price on the date of exercise and the price paid by the employee to exercise the options) was $15.2 million and $25.9 million, respectively.

A summary of the Company’s RSU, PSU and MSU activity during the year ended September 28, 2019 is presented below:



Non-vested Shares	Number of Shares (in millions)		Weighted-Average Grant-Date Fair Value
Non-vested at September 29, 2018	2.7		$	40.02
Granted	1.1		42.25
Vested	(1.1	)	37.28
Forfeited	(0.2	)	41.23
Non-vested at September 28, 2019	2.5		$	42.17

The number of RSUs vested includes shares withheld on behalf of employees to satisfy minimum statutory tax withholding requirements. The Company pays the minimum statutory tax withholding requirement on behalf of its employees. During fiscal 2019, 2018 and 2017 the total fair value of RSUs and PSUs vested was $34.6 million, $38.9 million and $39.5 million, respectively.

Included in the above chart, the Company granted 0.1 million and 0.6 million and 0.2 million PSUs during fiscal 2019, 2018, and 2017, respectively, to members of the Company's senior management team, which includes additional shares issued upon achieving metrics within the performance criteria. Each recipient of the PSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three year performance period provided the Company’s defined Return on Invested Capital metrics are achieved. These awards cliff-vest three years from the date of grant, and the Company recognizes compensation expense ratably over the required service period based on its estimate of the number of shares will vest upon achieving the measurement criteria. If there is a change in the estimate of the number of shares that are probable of vesting, the Company will cumulatively adjust compensation expense in the period that the change in estimate is made. The Company also granted 0.1 million, 0.3 million and 0.1 million MSUs during fiscal 2019. 2018 and 2017, respectively, to its senior management team. Each recipient of MSUs is eligible to receive between zero and 200% of the target number of shares of the Company’s common stock at the end of three year performance period based upon achieving a certain total shareholder return relative to a defined peer group. The MSUs were valued at $55.13, $49.44 and $48.98 per share using the Monte Carlo simulation model in fiscal 2019, 2018 and 2017, respectively. These awards cliff-vest three years from the date of grant, and the Company recognizes compensation expense for the MSUs ratably over the service period.

Employee Stock Purchase Plan

The Hologic, Inc. 2012 Employee Stock Purchase Plan (“2012 ESPP”) provides for the granting of up to 2.5 million shares of the Company’s common stock to eligible employees. The 2012 ESPP plan period is semi-annual and allows participants to purchase the Company’s common stock at 85% of the lower of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market value per share of the common stock on the purchase date. Stock-based compensation expense in fiscal 2019, 2018 and 2017 was $4.2 million, $4.0 million and $4.4 million, respectively.

The Company uses the Black-Scholes model to estimate the fair value of shares to be issued as of the grant date using the following weighted average assumptions:



	September 28, 2019		September 29, 2018		September 30, 2017
Assumptions:
Risk-free interest rates	2.27	%	1.62	%	0.72	%
Expected life (in years)	0.5		0.5		0.5
Expected volatility	27.1	%	25.0	%	24.9	%
Dividend yield	—		—		—