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Stock-Based Compensation Expense | 9 Months Ended
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Sep. 29, 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 units (RSUs). As of September 29, 2019, the Company had 17,350,152 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. RSUs generally vest upon three years of continuous employment or incrementally over such three-year period. Participants are not entitled to dividends on RSUs. Stock Options The following table summarizes the Company’s stock option activity for the nine-month period ended September 29, 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 | 2,879 |  |  | 51.22 |  |  |  |  |
Exercised | (1,475 | ) |  | 21.53 |  |  |  |  |
Forfeited or expired | (726 | ) |  | 41.79 |  |  |  |  |
Outstanding as of September 29, 2019 | 14,467 |  |  | $ | 36.14 |  |  | 7.19 |  | $ | 203,774 |
Exercisable as of September 29, 2019 | 5,714 |  |  | $ | 25.33 |  |  | 5.73 |  | $ | 134,913 |
Options vested or expected to vest as of September 29, 2019 (1) | 13,116 |  |  | $ | 34.90 |  |  | 7.04 |  | $ | 199,066 |
(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 |  | Nine-months Ended
| September 29, 2019 |  | September 30, 2018 |  | September 29, 2019 |  | September 30, 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) | 5.1 |  |  | 5.4 |  |  | 5.2 |  |  | 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 weighted-average grant-date fair values of stock options granted during the three-month periods ended September 29, 2019 and September 30, 2018 were $18.42 and $22.52, respectively. The weighted-average grant-date fair values of stock options granted during the nine-month periods ended September 29, 2019 and September 30, 2018 were $18.58 and $21.70, respectively. The total intrinsic values of stock options exercised for the three-month periods ended September 29, 2019 and September 30, 2018 were $5,746,000 and $17,985,000, respectively. The total intrinsic values of stock options exercised for the nine-month periods ended September 29, 2019 and September 30, 2018 were $42,545,000 and $50,975,000, respectively. The total fair values of stock options vested for the three-month periods ended September 29, 2019 and September 30, 2018 were $1,213,000 and $997,000, respectively. The total fair values of stock options vested for the nine-month periods ended September 29, 2019 and September 30, 2018 were $32,072,000 and $27,557,000, respectively. Restricted Stock Units (RSUs) The fair values of RSUs granted were determined based upon the market value of the Company's common stock at the time of grant. The initial cost was then amortized over the period of vesting until the restrictions lapsed. The following table summarizes the Company's RSUs activity for the nine-month period ended September 29, 2019:
| Shares (in thousands) |  | Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2018 | — |  |  | $ | — |
Granted | 75 |  |  | 45.20 |
Vested | — |  |  | — |
Forfeited or expired | — |  |  | — |
Nonvested as of September 29, 2019 | 75 |  |  | $ | 45.20 |
The weighted-average grant-date fair values of RSUs granted during the three-month and nine-month periods ended September 29, 2019 were $45.20. There were no RSUs vested for the three or nine-month periods ended September 29, 2019. There were no RSUs granted or vested in 2018. Stock-Based Compensation Expense 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 equity awards 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 an increase to compensation expense of $1,283,000 in 2018. As of September 29, 2019, total unrecognized compensation expense related to non-vested stock awards, including stock options and RSUs, was $59,708,000, which is expected to be recognized over a weighted-average period of 1.60 years. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended September 29, 2019 were $10,194,000 and $1,804,000, respectively, and for the three-month period ended September 30, 2018 were $9,143,000 and $1,654,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the nine-month period ended September 29, 2019 were $33,442,000 and $5,839,000, respectively, and for the nine-month period ended September 30, 2018 were $31,339,000 and $5,608,000, respectively. No compensation expense was capitalized as of September 29, 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 |  | Nine-months Ended
| September 29, 2019 |  | September 30, 2018 |  | September 29, 2019 |  | September 30, 2018
Cost of revenue | $ | 334 |  |  | $ | 544 |  |  | $ | 1,114 |  |  | $ | 1,898 |
Research, development, and engineering | 3,616 |  |  | 3,197 |  |  | 11,633 |  |  | 11,166 |
Selling, general, and administrative | 6,244 |  |  | 5,402 |  |  | 20,695 |  |  | 18,275 |
| $ | 10,194 |  |  | $ | 9,143 |  |  | $ | 33,442 |  |  | $ | 31,339 |

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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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