STOCK-BASED COMPENSATION

12 Months Ended

Dec. 28, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

The Company has stock-based compensation plans under which employees and non-employee directors may be granted stock-based awards such as stock options, restricted stock, restricted stock units (RSUs), and performance share units (PSUs).

During fiscal years 2019, 2018 and 2017, the primary share-based awards and their general terms and conditions are as follows:

• Stock options, which entitle the holder to purchase a specified number of shares of common stock at an exercise price equal to the closing market price of common stock on the date of grant; typically vest over 4 years; and typically expire 5 years from date of grant.

• RSUs, which represent an unsecured promise to grant at no cost a set number of shares of common stock upon the completion of the vesting schedule, and typically vest over 2 to 4 years. With respect to RSUs, recipients are not entitled to cash dividends and have no voting rights on the stock during the vesting period.

• PSUs, which entitle the holder to receive at no cost, a specified number of shares of common stock within a range of shares from zero to a specified maximum and typically vest over 3 years. Payout of this award is contingent upon achievement of certain performance and market conditions.

In May 2007, the Company’s shareholders approved the 2007 Incentive Plan, which was amended in 2009, 2011, 2013 and 2015 (2007 Plan). The 2007 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2007 Plan allows a maximum of 18.7 million shares to be awarded, of which restricted stock grants, RSUs, and performance based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2007 continue in accordance with the terms of the respective plans.

In May 2016, the Company’s shareholders approved the 2016 Incentive Plan (2016 Plan). The 2016 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been

forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2016 Plan allows a maximum of 6.1 million shares to be awarded, of which restricted stock grants, RSUs, and performance based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2016 continue in accordance with the terms of the respective plans.

In May 2018, the Company’s shareholders approved the 2018 Incentive Plan (2018 Plan). The 2018 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2018 Plan allows a maximum of 7.2 million shares to be awarded, of which restricted stock grants, RSUs, and performance based stock awards count as 2.3 shares and stock options count as 1.0 share. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2018 continue in accordance with the terms of the respective plans.

As of December 28, 2019, approximately 5.8 million shares were authorized for future grants under the Company’s share-based compensation plans. The Company settles employee share-based compensation awards with newly issued shares. The following table provides stock-based compensation by the financial statement line item in which it is reflected:

	Fiscal Year
	2019			2018			2017
	(in thousands)
Cost of revenue	$	9,038		$	6,285		$	6,509
Selling, general and administrative	48,233			41,061			37,494
Stock-based compensation, before income taxes	57,271			47,346			44,003
Provision for income taxes	(9,465		)	(9,188		)	(13,428		)
Stock-based compensation, net of income taxes	$	47,806		$	38,158		$	30,575

No stock-based compensation related costs were capitalized in fiscal years 2019, 2018 and 2017.

Stock Options

The following table summarizes stock option activity under the Company’s stock-based compensation plans:

	Number of shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)				(in years)	(in thousands)
Options outstanding as of December 29, 2018	1,556		$	86.44
Options granted	454		$	144.42
Options exercised	(442	)	$	78.49
Options canceled	(61	)	$	113.17
Options outstanding as of December 28, 2019	1,507		$	105.19	2.7	$	70,459
Options exercisable as of December 28, 2019	390		$	77.87	1.5	$	28,897
Options expected to vest as of December 28, 2019	1,117		$	114.73	3.1	$	41,562

The fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Fiscal Year
	2019		2018		2017
Expected life (in years)	3.6		3.7		3.6
Expected volatility	27	%	25	%	24	%
Risk-free interest rate	2.4	%	2.4	%	1.6	%
Expected dividend yield	0	%	0	%	0	%

The weighted-average grant date fair value of stock options granted was $33.97, $24.80 and $18.33 for fiscal years 2019, 2018 and 2017, respectively.

As of December 28, 2019, the unrecognized compensation cost related to unvested stock options expected to vest was $16.5 million. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.3 years.

The total intrinsic value of options exercised during fiscal years 2019, 2018 and 2017 was $27.0 million, $29.0 million and $30.0 million, respectively, with intrinsic value defined as the difference between the market price on the date of exercise and the exercise price.

Restricted Stock Units

The following table summarizes the restricted stock units activity for fiscal year 2019:

	Restricted Stock Units		Weighted Average Grant Date Fair Value
	(in thousands)
December 29, 2018	490		$	93.80
Granted	221		$	142.85
Vested	(185	)	$	89.34
Canceled	(30	)	$	115.10
December 28, 2019	496		$	116.07

As of December 28, 2019, the unrecognized compensation cost related to shares of unvested RSUs expected to vest was $32.6 million, which is expected to be recognized over an estimated weighted-average amortization period of 2.3 years. The total fair value of RSU grants that vested during fiscal years 2019, 2018 and 2017 was $16.5 million, $15.5 million and $13.6 million, respectively.

Performance Based Stock Award Program

The Company issues PSUs to certain corporate officers. The number of shares of common stock issued for each PSU is adjusted based on a performance condition linked to the Company’s financial performance. Certain awards are further adjusted based on a market condition, which is calculated based on the Company’s stock performance relative to a peer group over the three-year vesting period. The fair value of the market condition is reflected in the fair value of the award at grant date.

The Company utilizes a Monte Carlo simulation valuation model to value these awards. Information pertaining to the Company’s PSUs and the related estimated weighted-average assumptions used to calculate their fair value were as follows:

	Fiscal Year
	2019			2018			2017
	(shares in thousands)
PSUs granted	160			200			198
Weighted average grant date fair value	$	164.47		$	117.89		$	99.96
Key Assumptions:
Expected volatility	25		%	26		%	26		%
Risk-free interest rate	2.4		%	2.4		%	1.3		%
Expected dividend yield	0		%	0		%	0		%
Total shareholder return of 20-trading day average stock price on grant date	17.7		%	2.9		%	17.7		%

The maximum number of common shares to be issued upon vesting of PSUs is 0.3 million. For fiscal years 2019, 2018 and 2017, the Company recognized stock-based compensation related to PSUs of $25.3 million, $20.4 million and $18.9 million, respectively. The total fair value of PSUs that vested during fiscal years 2019, 2018 and 2017 was $20.2 million, $18.3 million and $14.4 million, respectively.

In fiscal years 2019, 2018 and 2017, the Company also issued approximately 15,000, 17,000 and 15,000 PSUs using a weighted-average grant date fair value per share of $144.67, $109.34 and $88.05 respectively. These PSUs vest upon the achievement of financial targets and other performance measures.