STOCK-BASED COMPENSATION

The Company has stock-based compensation plans under which employees and non-employee directors may be granted stock-based awards such as stock options, restricted stock, restricted stock units and PSUs.

During fiscal years 2016, 2015 and 2014, the primary share-based awards and their general terms and conditions are as follows:


•	Stock options, which entitle the holder to purchase a specified number of shares of common stock at an exercise price equal to the closing market price of common stock on the date of grant; typically vest over 4 years; and typically expire 5 to 7 years from date of grant.


•	Restricted stock units, which represent an unsecured promise to grant at no cost a set number of shares of common stock upon the completion of the vesting schedule, and typically vest over 2 to 4 years. With respect to restricted stock units, recipients are not entitled to cash dividends and have no voting rights on the stock during the vesting period.


•	Restricted stock, which is an award of common stock issued on the grant date and subject to vesting, typically over 2 to 4 years. Recipients cannot sell or transfer the shares until the restriction period has lapsed, but are entitled to forfeitable cash dividends and to vote their respective shares upon grant.


•	PSUs, which entitle the holder to receive at no cost, a specified number of shares of common stock within a range of shares from zero to a specified maximum and typically vest over 3 years. Payout of this award is contingent upon achievement of certain performance and market conditions.

In May 2007, the Company’s shareholders approved the 2007 Incentive Plan, which was amended in 2009, 2011, 2013 and 2015 (2007 Plan). The 2007 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2007 Plan allows a maximum of 18.7 million shares to be awarded, of which restricted stock grants, restricted stock units, and performance based stock awards count as 2.3 shares and stock options count as 1.0 shares. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2007 continue in accordance with the terms of the respective plans.

In May 2016, the Company’s shareholders approved the 2016 Incentive Plan (2016 Plan). The 2016 Plan provided no further awards to be granted under preexisting stock option and incentive plans; provided, however, that any shares that have been forfeited or canceled in accordance with the terms of the applicable award under a preexisting plan may be subsequently awarded in accordance with the terms of the preexisting plan. The 2016 Plan allows a maximum of 6.1 million shares to be awarded, of which restricted stock grants, restricted stock units and performance based stock awards count as 2.3 shares and stock options count as 1.0 shares. Any stock options and other share-based awards that were granted under prior plans and were outstanding in May 2016 continue in accordance with the terms of the respective plans.

As of December 31, 2016, approximately 7.3 million shares were authorized for future grants under the Company’s share-based compensation plans. The Company settles employee share-based compensation awards with newly issued shares. The following table provides the financial statement line items in which stock-based compensation is reflected:



	Fiscal Year
	2016			2015			2014

	(in thousands)
Cost of revenue (excluding amortization of intangible assets)	$	6,508		$	6,511		$	5,382
Selling, general and administrative	37,134			33,611			25,653
Stock-based compensation expense, before income taxes	43,642			40,122			31,035
Provision for income taxes	(15,548		)	(14,225		)	(11,006		)
Stock-based compensation, net of income taxes	$	28,094		$	25,897		$	20,029

During fiscal year 2015, the Company modified certain stock-based awards granted in previous years as part of executive retirement transitions. For the stock-based awards granted to employees during and subsequent to fiscal year 2015, the Company introduced a new retirement provision, which allows for continued vesting of such awards after the employee’s retirement if certain eligibility conditions are met. The introduction of the new retirement provision and stock-based award modifications increased the Company’s stock-based compensation expense for 2015 by $4.5 million.

The Company capitalized no stock-based compensation related costs for fiscal years 2016, 2015 and 2014.

The Company’s pool of excess tax benefits, which is computed in accordance with the long form method, was $32.2 million as of December 31, 2016, $22.3 million as of December 26, 2015, and $10.8 million as of December 27, 2014. During fiscal year 2016, the Company recorded a tax benefit of $9.3 million to additional paid-in capital related to the exercise of stock options and vesting of restricted shares and restricted stock units, compared to a tax benefit of $10.6 million in fiscal year 2015.

Stock Options

The following table summarizes stock option activities under the Company’s stock-based compensation plans:



	Number of shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value

	(in thousands, except per share amounts)
Options outstanding as of December 26, 2015	2,066		$	50.62
Options granted	588		$	74.13
Options exercised	(601	)	$	38.52
Options canceled	(83	)	$	62.66
Options outstanding as of December 31, 2016	1,970		$	60.82	3.4	$	30,638
Options exercisable as of December 31, 2016	746		$	48.34	2.6	$	20,817
Options expected to vest as of December 31, 2016	1,202		$	68.40	3.8	$	9,690

The fair value of stock options granted was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Fiscal Year
	2016		2015		2014
Expected life (in years)	3.6		3.6		4.2
Expected volatility	25	%	28	%	30	%
Risk-free interest rate	1.2	%	1.1	%	1.5	%
Expected dividend yield	0	%	0	%	0	%

The weighted-average grant date fair value of stock options granted was $15.12, $17.24 and $15.19 for fiscal years 2016, 2015 and 2014, respectively.

As of December 31, 2016, the unrecognized compensation cost related to unvested stock options expected to vest was $10.8 million. This unrecognized compensation will be recognized over an estimated weighted-average amortization period of 2.2 years.

The total intrinsic value of options exercised during fiscal years 2016, 2015 and 2014 was $23.0 million, $28.3 million and $30.5 million, respectively, with intrinsic value defined as the difference between the market price on the date of exercise and the exercise price.

Restricted Stock and Restricted Stock Units

The following table summarizes the restricted stock and restricted stock units activity for fiscal year 2016:



	Restricted Stock and Restricted Stock Units		Weighted Average Grant Date Fair Value
	(in thousands)
December 26, 2015	607		$	55.52
Granted	236		$	75.10
Vested	(296	)	$	49.29
Canceled	(32	)	$	63.36
December 31, 2016	515		$	67.62

As of December 31, 2016, the unrecognized compensation cost related to shares of unvested restricted stock and restricted stock units expected to vest was $19.2 million, which is expected to be recognized over an estimated weighted-average amortization period of 1.2 years. The total fair value of restricted stock and restricted stock unit grants that vested during fiscal years 2016, 2015 and 2014 was $14.6 million, $15.7 million and $13.9 million, respectively.

Performance Based Stock Award Program

The Company issues PSUs to certain corporate officers. The number of shares of common stock issued for each PSU is adjusted based on a performance condition linked to the Company’s financial performance. Certain awards are further adjusted based on a market condition, which is calculated based on the Company’s stock performance relative to a peer group over the three-year vesting period. The fair value of the market condition is reflected in the fair value of the award at grant date.

The Company utilizes a Monte Carlo simulation valuation model to value these awards. Information pertaining to the Company’s PSUs and the related estimated weighted-average assumptions used to calculate their fair value were as follows:



	Fiscal Year
	2016			2015			2014
PSUs granted	190,628			148,900			214,823
Weighted average per share fair value	$	80.38		$	88.62		$	67.82
Key Assumptions:
Expected volatility	24		%	23		%	29		%
Risk-free interest rate	0.91		%	0.96		%	0.63		%
Expected dividend yield	—		%	—		%	—		%
20 trading day average stock price on grant date	(4.8		)%	20.6		%	13.1		%

The maximum amount of common shares to be issued upon vesting of PSUs is approximately 0.3 million. For fiscal years 2016, 2015 and 2014, the Company recognized stock-based compensation related to PSUs of $19.7 million, $14.7 million and $8.5 million, respectively. The total fair value of PSUs that vested during fiscal years 2016 and 2015 was $18.0 million and $6.6 million, respectively.

In fiscal year 2016, the Company also issued approximately 18,000 PSUs using a weighted average fair value per share of $73.70. These PSUs vest upon the achievement of financial targets and other performance measures.