Share - Based Compensation Plans

12 Months Ended

Sep. 27, 2019

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

SHARE-BASED COMPENSATION PLANS

Stock Plans

We have three equity incentive plans: the Amended and Restated 2009 Omnibus Stock Plan ("2009 Plan"), the 2012 Omnibus Incentive Plan, as amended ("2012 Plan") and the 2012 Employee Stock Purchase Plan, as amended and restated ("ESPP").

Upon the closing of our initial public offering, all shares that were reserved under the 2009 Plan but not awarded were assumed by the 2012 Plan. No additional awards will be made under the 2009 Plan. Under the 2012 Plan, we have the ability to issue incentive stock options ("ISOs"), nonqualified stock options ("NQs"), stock appreciation rights, restricted stock ("RSAs"), restricted stock units ("RSUs"), performance-based stock units ("PRSUs") and other equity-based awards to employees, directors and outside consultants. The ISOs and NQs must be granted at a price per share not less than the fair value of our common stock on the date of grant. Options granted to date primarily vest based on certain market-based and performance-based criteria as described below. Certain of the share-based awards granted and outstanding as of September 27, 2019, are subject to accelerated vesting upon a sale of the Company or similar changes in control. Options granted generally have a term of four to seven years.

As of September 27, 2019, we had 15.7 million shares available for future issuance under the 2012 Plan and 3.4 million shares available for issuance under our ESPP.

Outside of the three equity plans described above, we also grant incentive stock units ("ISUs") to certain of our international employees which typically vest over four years and for which the fair value is determined by our underlying stock price, which are classified as liabilities and settled in cash upon vesting. As of September 27, 2019, we had 195,598 ISU awards outstanding with a fair value of $2.0 million recorded as an accrued compensation liability. As of September 28, 2018, we had approximately 191,620 ISU awards outstanding with a fair value of $1.9 million recorded as an accrued compensation liability. During fiscal year 2019, 69,035 ISU awards vested and were paid at a fair value of $1.2 million. We recorded an expense for these ISU awards of $1.3 million in fiscal year 2019, primarily as a result of an increase in our stock price, and we recorded a gain of $1.1 million and an expense of $3.9 million in fiscal years 2018 and 2017, respectively.

Employee Stock Purchase Plan

The ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. In administering the ESPP, the board of directors has limited discretion to set the length of the offering periods thereunder. As of September 27, 2019, total unrecognized compensation cost related to the ESPP was $0.3 million. In fiscal years 2019, 2018 and 2017, 421,777, 305,851 and 146,149 shares of common stock were issued under the ESPP, respectively.

The 2012 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the 2012 Plan can be increased on the first day of each fiscal year by the lesser of (a) 4.0% of outstanding common stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (b) 1.9 million shares of common stock and (c) a lesser amount determined by the board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the 2012 Plan. The ESPP also contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the ESPP can be increased on the first day of each fiscal year by the lesser of (a) 1.25% of outstanding common stock on a fully diluted basis as of the end of the immediately preceding fiscal year, (b) 550,000 shares of common stock and (c) a lesser amount determined by the board of directors; provided, however, that any shares from any increases in previous years that are not actually issued will continue to be available for issuance under the ESPP. In fiscal year 2019, pursuant to the evergreen provisions, the number of shares of common stock available for issuance under the 2012 Plan and the ESPP were increased by 1.9 million shares and 550,000 shares, respectively.

Share-Based Compensation

The following table shows a summary of share-based compensation expense included in the Consolidated Statements of Operations during the periods presented (in thousands):



	Fiscal Years
	2019		2018		2017
Cost of revenue	$	2,936	$	3,869	$	3,189
Research and development	8,551		13,448		10,565
Selling, general and administrative	12,305		14,620		22,581
Total	$	23,792	$	31,937	$	36,335

Amounts presented above include share-based compensation expense of $0.8 million for fiscal year 2017, which is recorded as discontinued operations related to employees of our Compute business.

As of September 27, 2019, the total unrecognized compensation costs related to outstanding stock options, restricted stock awards and units including awards with time-based, performance-based, and market-based vesting was $47.0 million, which we expect to recognize over a weighted-average period of 2.9 years.

Stock Options

A summary of stock option activity for fiscal year 2019 is as follows (in thousands, except per share amounts and contractual term):



	Number of Shares		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Options outstanding - September 28, 2018	1,408		$	32.05
Granted	585		15.44
Exercised	(119	)	13.48
Forfeited, canceled or expired	(1,497	)	31.68
Options outstanding - September 27, 2019	376		$	13.58	7.03	$	3,046
Options vested and expected to vest - September 27, 2019	376		$	13.58	7.03	$	3,046
Options exercisable - September 27, 2019	91		$	9.82	2.48	$	1,081

Aggregate intrinsic value represents the difference between our closing stock price on September 27, 2019, and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was $0.7 million, $0.9 million and $8.9 million for fiscal years 2019, 2018 and 2017, respectively.

Stock Options with Time-based Vesting Criteria

In November 2017, we granted 10,924 incentive stock options and 69,076 non-qualified stock options with a total grant date fair value of $17.55 per share, or $1.4 million. These stock options were valued using a Black-Scholes model, using a volatility rate of 45.7%, a risk-free rate of 2.21%, a strike price of $36.61 and an expected term of 6.5 years. Share-based compensation expense is recognized on a straight-line basis over the service period which approximated 4.5 years for these awards. These awards were included in the cancellation during the fiscal first quarter of 2019 as discussed in the section below.

Stock Options with Market-based Vesting Criteria

We grant NQs that are subject to vesting only upon the market price of our underlying public stock closing above a certain price target within seven years of the date of grant. Share-based compensation expense is recognized regardless of the number of awards that are earned based on the market condition and is recognized on a straight-line basis over the estimated service period of approximately three years. If the required service period is not met for these options, then the share-based compensation expense would be reversed. In the event that our common stock achieves the target price per share based on a 30-day trailing average prior to the end of the estimated service period, any remaining unamortized compensation cost will be recognized.

Stock options with market-based vesting criteria granted for fiscal years 2019, 2018 and 2017 were 585,000, 325,000 and 320,000, respectively, at weighted average grant date fair values of $7.47, $15.52 and $13.18 per share, or total grant date fair value $2.4 million, $5.0 million and $4.3 million, respectively.

These NQs with market-based vesting criteria were valued using a Monte Carlo simulation model. The weighted average Monte Carlo input assumptions used for calculating the fair value of these market-based stock options are as follows:



	Fiscal Years
	2019		2018		2017
Risk-free interest rate	2.8	%	2.3	%	1.9	%
Expected term (years)	3.9		3.4		7.0
Expected volatility	51.9	%	45.8	%	32.3	%
Target price	$53.87		$98.99		$67.39

During our fiscal first quarter of 2019, we canceled 1,122,500 performance-based stock options with a concurrent grant of 748,328 PRSUs for 13 employees, which was accounted for as a modification. The incremental compensation cost resulting from the modification was $8.2 million, and was being recognized as share-based compensation expense over the requisite service period of three years for the new PRSU awards. As a result of subsequent actions that resulted in forfeitures, the remaining compensation expense associated with this modification as of September 27, 2019 is $2.8 million.

Restricted Stock Awards and Units

A summary of restricted stock awards and units activity for fiscal year 2019 is as follows (in thousands):



	Number of Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Issued and unvested - September 28, 2018	1,872		$	34.15	$	38,452
Granted	2,977		18.18
Vested	(673	)	34.87
Forfeited, canceled or expired	(1,563	)	24.06
Issued and unvested - September 27, 2019	2,613		21.81		$	56,649

As of September 27, 2019, the aggregate intrinsic value of expected to vest restricted stock units including time-based, performance-based, and market-based units was $56.3 million for fiscal year 2019. The total fair value of restricted stock awards and units vested was $11.7 million, $19.7 million and $51.2 million for the fiscal years 2019, 2018 and 2017, respectively. RSUs granted generally vest over a period of four years.

In addition to RSUs, we also issue PRSUs with specific performance vesting criteria. These PRSUs have both a service and performance-based vesting condition and awards are divided into three equal tranches and vest based on achieving certain adjusted earnings per share growth metrics. The service condition requires participants to be employed on May 15th of the following year once the performance condition has been met. Depending on the actual performance achieved, a participant may earn between 0% to 300% of the targeted shares for each tranche, which is determined based on a straight-line interpolation applied for the achievement between the specified performance ranges. As of September 27, 2019, the performance condition targets for awards with future service conditions had not been met. We granted 1,005,854 PRSUs during fiscal year 2019 and 745,047 were forfeited. The amount of incremental PRSU awards that could ultimately vest if all performance criteria are achieved would be 1,196,337 shares assuming a maximum of 300% of the targeted shares.

We granted 200,000 market-based RSUs during fiscal year 2019, at a weighted average grant date fair value of $17.65 per share, and a total fair value of $3.5 million. Recipients may earn between 0% and 150% of the target number of shares based on the Company's achievement of total shareholder return in comparison to a peer group of companies in the Nasdaq composite index over a period of approximately three years. The fair value of the awards was estimated using a Monte Carlo simulation and compensation expense is recognized ratably over the service period based on the grant date fair value of the awards of $3.5 million subject to the market condition. The expected volatility of the Company's common stock was estimated based on the historical average volatility rate over the three-year period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free rate assumption was based on observed interest rates consistent with the three-year measurement period. The assumptions used to value the awards are as follows:



	Fiscal Year
	2019
Risk free interest rate	1.9	%
Years to maturity	3.33
Expected volatility rate	61.5	%
Dividend yield	—