Stock-Based Compensation

9 Months Ended

Oct. 02, 2020

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

The Company maintains certain stock-based compensation plans that were approved by the Company’s stockholders and are administered by the Board of Directors, or the Compensation and Organization Committee of the Board. The stock-based compensation plans provide for the granting of stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights and stock bonuses to employees, non-employee directors, consultants, and service providers.

The components and classification of stock-based compensation expense were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019
Stock options	$	10	$	101	$	33	$	304
RSUs	2,977		1,360		6,196		6,590
Total stock-based compensation expense	$	2,987	$	1,461	$	6,229	$	6,894
Cost of sales	$	530	$	168	$	1,214	$	766
Selling, general and administrative expenses	2,319		1,155		4,608		5,819
Research, development and engineering costs	138		69		407		193
Other operating expenses	—		69		—		116
Total stock-based compensation expense	$	2,987	$	1,461	$	6,229	$	6,894

(7.)     STOCK-BASED COMPENSATION (Continued)

The following table summarizes the Company’s stock option activity for the nine month period ended October 2, 2020:

	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)	Aggregate Intrinsic Value (In Millions)
Outstanding at December 31, 2019	384,013	$	34.96
Exercised	(95,923)	32.56
Outstanding at October 2, 2020	288,090	$	35.76	4.9	$	6.3
Exercisable at October 2, 2020	285,540	$	35.68	4.9	$	6.3

During the nine months ended October 2, 2020, the Company awarded grants to certain members of its Board of Directors, certain members of management, and other employees. The Board of Directors received grants of time-based RSUs that vest in four substantially equal quarterly installments beginning on the three-month anniversary of the grant date. The members of management and other employees received either time-based RSUs or a mix of time-based RSUs and performance-based RSUs (“PRSUs”). The time-based RSUs vest ratably, subject to the recipient’s continuous service to the Company over a period of generally three years from the grant date. For the Company’s PRSUs, in addition to service conditions, the ultimate number of shares to be earned depends on the achievement of financial performance or market-based conditions. The financial performance condition is based on the Company’s sales targets. The market-based conditions are based on the Company’s achievement of a relative total shareholder return (“TSR”) performance requirement, on a percentile basis, compared to a defined group of peer companies over three year performance periods.

The Company uses a Monte Carlo simulation model to determine the grant-date fair value of awards with TSR-based performance conditions. The grant-date fair value of all other RSUs is equal to the closing market price of Integer common stock on the date of grant.

The weighted average fair value and assumptions used to value the TSR portion of the PRSUs granted are as follows:

	Nine Months Ended
	October 2, 2020			September 27, 2019
Weighted average fair value	$	107.27		$	117.03
Risk-free interest rate	1.29		%	2.46		%
Expected volatility	30		%	40		%
Expected life (in years)	2.9			2.8
Expected dividend yield	—		%	—		%

The valuation of the TSR portion of the PRSUs granted during 2020 also reflects a weighted average illiquidity discount of 8.00%, determined utilizing the Chaffe model valuation technique, and related to the six-month period that recipients are restricted from selling, transferring, pledging or assigning the underlying shares, in the event of vesting.

(7.)     STOCK-BASED COMPENSATION (Continued)

The following table summarizes time-vested RSU activity for the nine month period ended October 2, 2020:

	Time-Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	205,223	$	64.75
Granted	143,122	83.94
Vested	(83,469)	59.60
Forfeited	(12,343)	75.28
Nonvested at October 2, 2020	252,533	$	76.81

The following table summarizes PRSU activity for the nine month period ended October 2, 2020:

	Performance- Vested Activity	Weighted Average Grant Date Fair Value
Nonvested at December 31, 2019	191,592	$	56.30
Granted	67,268	95.06
Vested	(35,363)	31.17
Forfeited	(4,106)	51.54
Nonvested at October 2, 2020	219,391	$	72.33