11. Share-Based Compensation

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

	Three Months Ended				Nine Months Ended
	September 28,		September 29,		September 28,		September 29,
	2018		2017		2018		2017
Selling, general and administrative	$	1,523	$	1,336	$	5,021	$	3,911
Research and development and engineering		114		59		306		156
Cost of revenue		58		41		148		156
Total share-based compensation expense	$	1,695	$	1,436	$	5,475	$	4,223

Share-based compensation reported in selling, general and administrative expenses during each of the nine-month periods ended September 28, 2018 and September 29, 2017, respectively, included $0.5 million of expense 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 vesting periods ranging from three years to five years 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 historical forfeiture 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 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 28, 2018:

	Shares (In thousands)			Weighted Average Grant Date Fair Value
Unvested at December 31, 2017		614		$	18.35
Granted		123		$	54.36
Vested		(186	)	$	18.52
Forfeited		(27	)	$	24.53
Unvested at September 28, 2018		524		$	26.39
Expected to vest as of September 28, 2018		500

The total fair value of RSUs and DSUs that vested during the nine months ended September 28, 2018 was $10.2 million based on the market price of the underlying stock on the date of vesting.

Performance Stock Units

The Company granted two types of performance-based stock awards to certain members of the executive management team: non-GAAP EPS performance-based restricted stock units (“EPS-PSUs”) and relative total shareholder return performance-based restricted stock units (“TSR-PSUs”). Both types of performance-based restricted stock units generally cliff vest on the first day following the end of the three-year performance period.

The number of common shares to be issued upon settlement following vesting of the EPS-PSUs is determined based on the Company’s cumulative non-GAAP EPS over the three-year performance period against the target established by the Company’s Compensation Committee at the time of grant and will be in the range of zero to 200% of the target number of shares. The Company recognizes compensation expense ratably over the performance period 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 quarterly and the cumulative effect of a change in the estimated compensation expense, if any, is recognized in the consolidated statement of operations in the period in which such determination is made.

The number of shares to be issued upon settlement following vesting of the TSR-PSUs is determined based on the relative market performance of the Company’s common stock compared to the Russell 2000 Index over the three-year performance period using a payout formula established by the Company’s Board of Directors at the time of grant and will be in the range of zero to 200% of the target number of shares. The Company recognizes the related compensation expense based on the fair value of the TSR-PSUs, determined using the Monte-Carlo valuation model as of the grant date, on a straight-line basis from the grant date to the end of the three-year performance period. Compensation expense will not be affected by the number of TSR-PSUs that will actually vest at the end of the three-year performance period.

The table below summarizes the activities relating to the performance-based awards issued and outstanding under the Company’s Amended and Restated 2010 Incentive Plan during the nine months ended September 28, 2018:

	Shares (In thousands)		Weighted Average Grant Date Fair Value
Unvested at December 31, 2017		89	$	24.00
Granted		48	$	62.17
Vested		—	$	—
Forfeited		—	$	—
Unvested at September 28, 2018		137	$	37.28

The fair value of the TSR-PSUs at the date of grant was estimated using the Monte-Carlo valuation model with the following assumptions:

	Nine Months Ended September 28, 2018
Grant-date stock price	$	53.85
Expected volatility		30.35	%
Risk-free interest rate		2.37	%
Expected annual dividend yield		—
Fair value	$	70.49