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Stock-Based Compensation Expense | 9 Months Ended
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Sep. 27, 2020
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation Expense | Stock-Based Compensation Expense Stock Plans The Company’s stock-based awards that result in compensation expense consist of stock options and restricted stock units ("RSUs"). As of September 27, 2020, the Company had 16,450,000 shares available for grant under its stock plans. 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 27, 2020:
| Shares (in thousands) |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2019 | 12,899 |  |  | $ | 37.95 |  |  |  |  |
Granted | 975 |  |  | 51.58 |  |  |  |  |
Exercised | (3,408) |  |  | 26.82 |  |  |  |  |
Forfeited or expired | (529) |  |  | 50.34 |  |  |  |  |
Outstanding as of September 27, 2020 | 9,937 |  |  | $ | 42.45 |  |  | 7.03 |  | $ | 191,245 |
Exercisable as of September 27, 2020 | 3,807 |  |  | $ | 33.58 |  |  | 5.83 |  | $ | 107,040 |
Options vested or expected to vest as of September 27, 2020 (1) | 9,125 |  |  | $ | 41.73 |  |  | 6.92 |  | $ | 182,232 |
(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 27, 2020 |  | September 29, 2019 |  | September 27, 2020 |  | September 29, 2019
Risk-free rate | — | % |  | 2.7 | % |  | 1.6 | % |  | 2.7 | %
Expected dividend yield | — | % |  | 0.39 | % |  | 0.43 | % |  | 0.39 | %
Expected volatility | — | % |  | 37 | % |  | 37 | % |  | 37 | %
Expected term (in years) | — |  |  | 5.1 |  | 6.0 |  | 5.2
No stock options were granted during the three-month period ended September 27, 2020. 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. There were no stock options granted during the three-month period ended September 27, 2020. The weighted-average grant-date fair values of stock options granted during the three-month period ended September 29, 2019 was $18.42. The weighted-average grant-date fair values of stock options granted during the nine-month periods ended September 27, 2020 and September 29, 2019 were $18.52 and $18.58, respectively. The total intrinsic values of stock options exercised for the three-month periods ended September 27, 2020 and September 29, 2019 were $62,787,000 and $5,746,000, respectively. The total intrinsic values of stock options exercised for the nine-month periods ended September 27, 2020 and September 29, 2019 were $116,600,000 and $42,545,000, respectively. The total fair values of stock options vested for the three-month periods ended September 27, 2020 and September 29, 2019 were $1,331,000 and $1,213,000, respectively. The total fair values of stock options vested for the nine-month periods ended September 27, 2020 and September 29, 2019 were $39,282,000 and $32,072,000, respectively. Restricted Stock Units (RSUs) The following table summarizes the Company's RSUs activity for the nine-month period ended September 27, 2020:
| Shares (in thousands) |  | Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2019 | 150 |  |  | $ | 48.63 |
Granted | 438 |  |  | 51.73 |
Vested | — |  |  | — |
Forfeited or expired | (34) |  |  | 50.60 |
Nonvested as of September 27, 2020 | 554 |  |  | $ | 50.96 |
The weighted-average grant-date fair values of RSUs granted during the three-month periods ended September 27, 2020 and September 29, 2019 were $67.14 and $45.20, respectively. The weighted-average grant-date fair values of RSUs granted during the nine-month periods ended September 27, 2020 and September 29, 2019 were $51.73 and $45.20, respectively. There were no RSUs that vested during the three-month and nine-month periods ended September 27, 2020 and September 29, 2019. 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 7% to all stock-based awards for senior management and a rate of 12% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate. This resulted in an increase to compensation expense of $1,787,000 in 2020 and a decrease to compensation expense of $499,000 in 2019. As of September 27, 2020, total unrecognized compensation expense related to non-vested equity awards, including stock options and RSUs, was $56,150,000, which is expected to be recognized over a weighted-average period of 1.8 years. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended September 27, 2020 were $9,268,000 and $1,524,000, respectively, and for the three-month period ended September 29, 2019 were $10,194,000 and $1,804,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the nine-month period ended September 27, 2020 were $32,076,000, which includes credits of $1,401,000 relating to grants cancelled as a result of the Company's workforce reduction, and $5,365,000, respectively, and for the nine-month period ended September 29, 2019 were $33,442,000 and $5,839,000, respectively. No compensation expense was capitalized as of September 27, 2020 or December 31, 2019. 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 27, 2020 |  | September 29, 2019 |  | September 27, 2020 |  | September 29, 2019
Cost of revenue | $ | 324 |  |  | $ | 334 |  |  | $ | 1,041 |  |  | $ | 1,114 |
Research, development, and engineering | 2,815 |  |  | 3,616 |  |  | 10,582 |  |  | 11,633 |
Selling, general, and administrative | 6,129 |  |  | 6,244 |  |  | 20,453 |  |  | 20,695 |
| $ | 9,268 |  |  | $ | 10,194 |  |  | $ | 32,076 |  |  | $ | 33,442 |

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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://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 710 -URI http://asc.fasb.org/topic&trid=2127225 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 710 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6409950&loc=d3e20396-108366 + Details
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