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Stock-Based Compensation Expense | 6 Months Ended
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Jun. 30, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Stock-Based Compensation Expense | Stock-Based Compensation Expense The Company’s share-based payments that result in compensation expense consist of stock option grants and restricted stock awards. As of June 30, 2019, the Company had 17,363,952 shares available for grant. Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based upon continuous service and expire ten years from the grant date. The following table summarizes the Company’s stock option activity for the six-month period ended June 30, 2019:
| Shares (in thousands) |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2018 | 13,789 |  |  | $ | 31.73 |  |  |  |  |
Granted | 2,821 |  |  | 51.37 |  |  |  |  |
Exercised | (1,239 | ) |  | 21.32 |  |  |  |  |
Forfeited or expired | (606 | ) |  | 40.27 |  |  |  |  |
Outstanding as of June 30, 2019 | 14,765 |  |  | $ | 36.00 |  |  | 7.42 |  | $ | 207,599 |
Exercisable as of June 30, 2019 | 5,867 |  |  | $ | 25.12 |  |  | 5.95 |  | $ | 138,370 |
Options vested or expected to vest as of June 30, 2019 (1) | 13,214 |  |  | $ | 34.65 |  |  | 7.25 |  | $ | 201,420 |
(1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options. The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:
| Three-months Ended |  | Six-months Ended
| June 30, 2019 |  | July 1, 2018 |  | June 30, 2019 |  | July 1, 2018
Risk-free rate | 2.7 | % |  | 2.9 | % |  | 2.7 | % |  | 2.9 | %
Expected dividend yield | 0.39 | % |  | 0.32 | % |  | 0.39 | % |  | 0.32 | %
Expected volatility | 37 | % |  | 39 | % |  | 37 | % |  | 39 | %
Expected term (in years) | 5.2 |  |  | 5.4 |  |  | 5.3 |  |  | 5.3 |
Risk-free rate The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option. Expected dividend yield Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date. Expected volatility The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock. Expected term The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time. The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 9% to all unvested options for senior management and a rate of 12% for all other employees. Each year during the first quarter, the Company revises its estimated forfeiture rate. This resulted in a decrease to compensation expense of $499,000 in 2019 and in increase to compensation expense of $1,283,000 in 2018. The weighted-average grant-date fair values of stock options granted during the three-month periods ended June 30, 2019 and July 1, 2018 were $18.68 and $21.63, respectively. The weighted-average grant-date fair values of stock options granted during the six-month periods ended June 30, 2019 and July 1, 2018 were $18.59 and $21.62, respectively. The total intrinsic values of stock options exercised for the three-month periods ended June 30, 2019 and July 1, 2018 were $14,220,000 and $4,902,000, respectively. The total intrinsic values of stock options exercised for the six-month periods ended June 30, 2019 and July 1, 2018 were $36,799,000 and $32,991,000, respectively. The total fair values of stock options vested for the three-month periods ended June 30, 2019 and July 1, 2018 were $887,000 and $887,000, respectively. The total fair values of stock options vested for the six-month periods ended June 30, 2019 and July 1, 2018 were $30,859,000 and $26,560,000, respectively. As of June 30, 2019, total unrecognized compensation expense related to non-vested stock options was $66,645,000, which is expected to be recognized over a weighted-average period of 1.88 years. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended June 30, 2019 were $10,967,000 and $1,813,000, respectively, and for the three-month period ended July 1, 2018 were $9,002,000 and $1,607,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the six-month period ended June 30, 2019 were $23,248,000 and $4,035,000, respectively, and for the six-month period ended July 1, 2018 were $22,196,000 and $3,954,000, respectively. No compensation expense was capitalized as of June 30, 2019 or December 31, 2018. The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):
| Three-months Ended |  | Six-months Ended
| June 30, 2019 |  | July 1, 2018 |  | June 30, 2019 |  | July 1, 2018
Cost of revenue | $ | 329 |  |  | $ | 557 |  |  | $ | 780 |  |  | $ | 1,354 |
Research, development, and engineering | 3,550 |  |  | 3,154 |  |  | 8,017 |  |  | 7,969 |
Selling, general, and administrative | 7,088 |  |  | 5,291 |  |  | 14,451 |  |  | 12,873 |
| $ | 10,967 |  |  | $ | 9,002 |  |  | $ | 23,248 |  |  | $ | 22,196 |

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- Definition The entire disclosure for compensation costs, including compensated absences accruals, compensated absences liability, deferred compensation arrangements and income statement compensation items. Deferred compensation arrangements may include a description of an arrangement with an individual employee, which is generally an employment contract between the entity and a selected officer or key employee containing a promise by the employer to pay certain amounts at designated future dates, usually including a period after retirement, upon compliance with stipulated requirements. This type of arrangement is distinguished from broader based employee benefit plans as it is usually tailored to the employee. Disclosure also typically includes the amount of related compensation expense recognized during the reporting period, the number of shares (units) issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 710 -URI http://asc.fasb.org/topic&trid=2127225 + Details
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