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Stock-Based Compensation Expense

3 Months Ended

Apr. 03, 2022

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, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs"). As of April 3, 2022, the Company had 14,242,000 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 or four years of continuous employment or incrementally over such three or four-year period. PRSUs generally vest upon three years of continuous employment and achievement of performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Participants are not entitled to dividends on RSUs or PRSUs.

Stock Options

The following table summarizes the Company’s stock option activity for the three-month period ended April 3, 2022:

			Shares (in thousands)						Weighted- Average Exercise Price						Weighted- Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021			7,610						$	49.38
Granted			1,003						64.43
Exercised			(98)						47.19
Forfeited or expired			(86)						62.79
Outstanding as of April 3, 2022			8,429						$	51.06					6.73						$	233,406
Exercisable as of April 3, 2022			4,332						$	43.39					5.56						$	151,220
Options vested or expected to vest as of April 3, 2022 (1)			7,901						$	50.34					6.62						$	224,117

 (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
			April 3, 2022						April 4, 2021
Risk-free rate			1.9		%				1.3		%
Expected dividend yield			0.40		%				0.27		%
Expected volatility			37		%				39		%
Expected term (in years)			5.2						5.7

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 April 3, 2022 and April 4, 2021 were $22.45 and $33.63, respectively.

The total intrinsic values of stock options exercised for the three-month periods ended April 3, 2022 and April 4, 2021 were $2,165,000 and $42,327,000, respectively. The total fair values of stock options vested for the three-month periods ended April 3, 2022 and April 4, 2021 were $25,535,000 and $35,600,000, respectively.

Restricted Stock Units (RSUs)

The following table summarizes the Company's RSUs activity for the three-month period ended April 3, 2022:

			Shares (in thousands)						Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2021			823						$	65.26
Granted			466						63.96
Vested			(54)						87.29
Forfeited or expired			(18)						66.10
Nonvested as of April 3, 2022			1,217						$	63.78

The fair value of RSUs is determined based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. The weighted-average grant-date fair values of RSUs granted during the three-month periods ended April 3, 2022 and April 4, 2021 were $63.96 and $89.86, respectively. The number of RSUs that vested during the three-month periods ended April 3, 2022 and April 4, 2021 were 54,000 and 2,000, respectively.

Performance Restricted Stock Units (PRSUs)

The following table summarizes the Company's PRSUs activity for the three-month period ended April 3, 2022:

			Shares (in thousands)						Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2021			—						$	—
Granted			33						62.49
Vested			—						—
Forfeited or expired			—						—
Nonvested as of April 3, 2022			33						$	62.49

No PRSUs were granted or vested during the three-month period ended April 4, 2021.

The fair value of PRSUs is calculated using the Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant.

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 based on updated estimates of employee turnover. This resulted in an increase to compensation expense of $1,536,000 in 2022 and a decrease to compensation expense of $255,000 in 2021.

As of April 3, 2022, total unrecognized compensation expense related to non-vested equity awards, including stock options, RSUs and PRSUs, was $81,239,000, 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 April 3, 2022 were $15,056,000 and $2,319,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended April 4, 2021 were $12,009,000 and $1,813,000, respectively. No compensation expense was capitalized as of April 3, 2022 or December 31, 2021.

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
			April 3, 2022						April 4, 2021
Cost of revenue			$	563					$	248
Research, development, and engineering			4,448						4,003
Selling, general, and administrative			10,045						7,758
			$	15,056					$	12,009

X

- 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

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- References

No definition available.

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