10. Share-Based Compensation

The table below summarizes share-based compensation expense recorded in income from continuing operations in the consolidated statements of operations (in thousands):

	Three Months Ended					Six Months Ended
	July 1, 2016		July 3, 2015			July 1, 2016		July 3, 2015
Selling, general and administrative	$	955	$	832		$	2,198	$	2,316
Research and development and engineering		39		31			64		80
Cost of revenue		61		73			135		137
Restructuring, acquisition and divestiture related costs		—		(277	)		—		(321	)
Total share-based compensation expense	$	1,055	$	659		$	2,397	$	2,212

The expense recorded during each of the six-month periods ended July 1, 2016 and July 3, 2015, respectively, included $0.5 million related to deferred stock units granted to the members of the Company’s Board of Directors.

Restricted Stock Units and Deferred Stock Units

The Company’s restricted stock units (“RSUs”) have generally been issued with a three-year vesting period and vest based solely on service conditions. Accordingly, the Company recognizes compensation expense on a straight-line basis over the requisite service period. The Company reduces the compensation expense by an estimated forfeiture rate which is based on anticipated forfeitures and actual experience.

Deferred stock units (“DSUs”) are granted to the members of the Company’s Board of Directors. The compensation expense associated with the DSUs is recognized in full on the respective date of grant, as DSUs are fully vested and non-forfeitable upon grant.

The table below summarizes activities relating to RSUs and DSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 1, 2016:

	Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2015		619		$	12.32
Granted		319		$	13.27
Vested		(316	)	$	11.98
Forfeited		(20	)	$	11.87
Unvested at July 1, 2016		602		$	13.02
Expected to vest as of July 1, 2016		577

The total fair value of RSUs and DSUs that vested during the six months ended July 1, 2016 was $4.1 million based on the market price of the underlying stock on the date of vesting.

Performance Stock Units

On March 30, 2016, the Company granted 46 thousand performance stock units (“PSUs”) to certain members of the executive management team. The performance objective is measured using cumulative Non-GAAP EPS over a three-year performance cycle. The Company recognizes compensation expense for PSUs on a straight-line basis. Compensation expense is determined based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle. This probability assessment is performed each quarter. The cumulative effect of the changes in the estimated compensation expense will be recognized in the consolidated statement of operations in the period in which such determination is made.

The table below summarizes activities relating to PSUs issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 1, 2016:

	Shares (In thousands)		Weighted Average Grant Date Fair Value
Unvested at December 31, 2015		—	$	—
Granted		46	$	14.13
Vested		—	$	—
Forfeited		—	$	—
Unvested at July 1, 2016		46	$	14.13
Expected to vest as of July 1, 2016		46

Stock Options

On March 30, 2016, the Company granted 193 thousand stock options to certain members of the executive management team to purchase common shares of the Company at a price equal to the closing market price of the Company’s common shares on the date of grant. The stock options vest ratably over a three-year period from the date of grant and expire on the tenth anniversary of the date of grant. We estimate the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the expected option term, the expected volatility of our common stock over the expected term of the options, the risk-free interest rate, and our expected dividend yield. The Company recognizes the compensation expense of stock options on a straight-line basis in the consolidated statement of operations over the vesting period.

The table below summarizes activities relating to stock options issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the six months ended July 1, 2016:

	Shares (In thousands)		Weighted Average Exercise Price
Outstanding as of December 31, 2015		—	$	—
Granted		193	$	14.13
Exercised		—	$	—
Forfeited or expired		—	$	—
Outstanding as of July 1, 2016		193	$	14.13
Exercisable as of July 1, 2016		—
Expected to vest as of July 1, 2016		193

The fair value of stock options granted during the six months ended July 1, 2016 was estimated as of the grant date using the Black-Scholes valuation model with the following assumptions:

	Six Months Ended July 1, 2016
Expected option term in years (1)		6.0
Expected volatility (2)		33.8	%
Risk-free interest rate (3)		1.6	%
Expected annual dividend yield (4)		—

(1)

The expected option term was calculated using the simplified method provided by Codification of Staff Accounting Bulletin Topic 14: “Share-Based Payment”.

(2)

The expected volatility was determined based on the historical volatility of the Company’s common stock over the expected option term.

(3)

Risk-free interest rate was based upon treasury instrument whose term was one year longer than the expected option term.

(4)

The expected annual dividend yield is zero, as the Company does not have plans to issue dividends.

The aggregate Black-Scholes fair value of the stock options granted during the six months ended July 1, 2016 was $1.0 million.