Share-based Arrangements

9 Months Ended

Oct. 01, 2021

Share-based Payment Arrangement, Noncash Expense [Abstract]

16. SHARE-BASED ARRANGEMENTS

The Company accounts for stock options, restricted stock awards ("RSAs"), restricted stock units and performance stock units ("PSUs") as equity awards and measures the cost of all share-based payments, including stock options, at fair value on the grant date and recognizes this cost in the statement of operations. The Company also has an employee stock purchase plan which is accounted for as a liability award.

In 2021, the Company modified its long-term incentive program to increase the emphasis on equity. Beginning in the first quarter of 2021, the long-term incentive awards granted to the Company's Named Executive Officers ("NEOs") will consist of a combination of service-based RSAs and PSUs which are intended to be settled in shares, as opposed to cash-based awards that had been utilized in the past. These awards are expected to increase the alignment of interests between the Company's NEOs and shareholders and help build stock ownership for new executives, supporting both executive retention and the Company's long-term financial performance. RSAs will vest over a three-year period on each of the first three anniversaries of the date of grant. The number of PSUs that will vest will be determined based on total shareholder return ("TSR") and return on total invested capital ("ROIC") over a three-year performance period, each of which will remain equally weighted in determining payouts. The achievement level for both factors may range from zero to 200%.

Compensation expense for stock options, RSAs, restricted stock units and PSUs is recognized on a straight-line basis over the vesting period of the awards. Throughout the course of the vesting period, the Company monitors the achievement level for the ROIC metric of the PSUs compared to the ROIC target and adjusts the number of shares expected to be earned, and the related compensation expense recorded thereafter, to reflect the most probable outcome. Share-based compensation expense recorded for the three-month and nine-month fiscal periods ended October 1, 2021 was $1.5 million and $5.7 million, respectively. Of these amounts, $0.1 million and $0.3 million was recorded to restructuring and severance costs, respectively, and the remaining amounts were recorded to selling, general and administrative expenses on the Company's Condensed Consolidated Statements of Operations. Share-based compensation expense recorded for the three-month and nine-month fiscal periods ended October 2, 2020 was $0.7 million and $4.3 million, respectively. Of these amounts, $0.4 million was recorded to restructuring and severance costs in both the three-month and nine-month fiscal periods ended October 2, 2020 and the remaining amounts were recorded to selling, general and administrative expenses on the Company's Condensed Consolidated Statements of Operations.

Stock option activity was as follows:


	For the Three Months Ended			For the Nine Months Ended
	October 1, 2021			October 1, 2021
	Options	Weighted - average exercise price		Options	Weighted - average exercise price
Options outstanding at beginning of period	760,936	$	55.15	772,625	$	54.87
Granted	—	$	—	4,990	$	55.85
Exercised	—	$	—	(14,899)	$	39.79
Forfeited or expired	(9,610)	$	63.43	(11,390)	$	63.59
Options outstanding at October 1, 2021	751,326	$	55.05	751,326	$	55.05

16. SHARE-BASED ARRANGEMENTS (CONTINUED)

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model. The following table indicates the weighted-average assumptions used in estimating fair value:


	For the Nine Months Ended
	October 1, 2021		October 2, 2020
Expected option term (years)	4.9		4.9
Expected volatility	35.7	%	20.2	%
Risk-free interest rate	0.5	%	1.4	%
Expected dividend yield	1.6	%	1.3	%
Per share fair value of options granted	$14.89		$10.74

Restricted stock award and restricted stock unit activity were as follows:


	For the Three Months Ended			For the Nine Months Ended
	October 1, 2021			October 1, 2021
	Restricted Stock	Weighted- average grant date fair value		Restricted Stock	Weighted- average grant date fair value
Restricted Stock outstanding at beginning of period	143,704	$	53.77	109,514	$	53.66
Granted	—	$	—	83,656	$	55.20
Vested	(3,373)	$	55.85	(50,612)	$	55.81
Forfeited or expired	(210)	$	57.33	(2,437)	$	58.21
Restricted Stock outstanding at October 1, 2021	140,121	$	53.72	140,121	$	53.72

Performance stock unit activity was as follows:


	For the Three Months Ended			For the Nine Months Ended
	October 1, 2021			October 1, 2021
	Performance Stock	Weighted- average grant date fair value		Performance Stock	Weighted- average grant date fair value
Performance Stock outstanding at beginning of period	80,500	$	70.17	—	$	—
Granted(1)	—	$	—	82,460	$	70.17
Vested	—	$	—	—	$	—
Forfeited or expired	—	$	—	(1,960)	$	70.16
Performance Stock outstanding at October 1, 2021	80,500	$	70.17	80,500	$	70.17

(1) The PSUs granted in the first quarter of 2021 assumed a 100% achievement level.

The fair value of the PSUs based on TSR was estimated on the date of grant using a Monte-Carlo simulation model. The following table indicates the weighted-average assumptions used in estimating fair value:


	For the Nine Months Ended
	October 1, 2021
Expected term (years)	2.9
Expected volatility	41.3		%
Risk-free interest rate	0.2		%
Expected dividend yield	1.4		%
Per share fair value of performance stock granted	$	84.49