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				Nine Months Ended
	September 30, 2016		October 2, 2015		September 30, 2016		October 2, 2015
Selling, general and administrative	$	914	$	849	$	3,112	$	3,165
Research and development and engineering		18		42		82		122
Cost of revenue		56		70		191		207
Restructuring, acquisition and divestiture related costs		—		—		—		(321	)
Total share-based compensation expense	$	988	$	961	$	3,385	$	3,173

The expense recorded during each of the nine-month periods ended September 30, 2016 and October 2, 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 or five-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 nine months ended September 30, 2016:

	Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2015		619		$	12.32
Granted		520		$	14.17
Vested		(362	)	$	12.02
Forfeited		(142	)	$	13.11
Unvested at September 30, 2016		635		$	13.83
Expected to vest as of September 30, 2016		573

The total fair value of RSUs and DSUs that vested during the nine months ended September 30, 2016 was $4.9 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 nine months ended September 30, 2016:

	Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2015		—		$	—
Granted		46		$	14.13
Vested		—		$	—
Forfeited		(17	)	$	14.13
Unvested at September 30, 2016		29		$	14.13
Expected to vest as of September 30, 2016		29

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 beginning on the anniversary date of 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 nine months ended September 30, 2016:

	Shares (In thousands)			Weighted Average Exercise Price
Outstanding as of December 31, 2015		—		$	—
Granted		193		$	14.13
Exercised		—		$	—
Forfeited or expired		(77	)	$	14.13
Outstanding as of September 30, 2016		116		$	14.13
Exercisable as of September 30, 2016		13		$	14.13
Expected to vest as of September 30, 2016		103

The fair value of stock options granted during the nine months ended September 30, 2016 was estimated as of the grant date using the Black-Scholes valuation model with the following assumptions:

	Nine Months Ended September 30, 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 nine months ended September 30, 2016 was $1.0 million.