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Stock-Based Compensation Expense
 3 Months Ended
Apr. 02, 2023
Share-Based Payment Arrangement [Abstract]  
Shareholders' Equity and Share-based Payments Stock-Based Compensation Expense
Stock Plans
The Company’s stock-based awards that result in compensation expense consist of stock options, restricted stock units ("RSUs"), and performance restricted stock units ("PRSUs"). As of April 2, 2023, the Company had 12,116,000 shares available for grant under its stock plans. Stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date and generally vest over four or five years based upon continuous service and expire ten years from the grant date. RSUs generally vest upon three or four years of continuous employment or incrementally over such three or four-year periods. PRSUs generally vest upon three years of continuous employment and achievement of performance criteria established by the Compensation Committee of our Board of Directors on or prior to the grant date. Participants are not entitled to dividends on stock options, RSUs, or PRSUs.
Stock Options
The following table summarizes the Company’s stock option activity for the three-month period ended April 2, 2023:
Shares
(in thousands)		Weighted-
Average
Exercise
Price		Weighted-
Average
Remaining
Contractual
Term (in years)		Aggregate
Intrinsic
Value
(in thousands)
Outstanding as of December 31, 20228,467 $51.56 
Granted1,228 47.21 
Exercised(140)28.36 
Forfeited or expired(247)58.05 
Outstanding as of April 2, 20239,308 $51.16 6.53$37,312 
Exercisable as of April 2, 20235,433 $47.45 5.12$33,531 
Options vested or expected to vest as of April 2, 2023 (1)8,735 $50.90 6.37$36,643 
 (1) In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.
The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:
 Three-months Ended
 April 2, 2023April 3, 2022
Risk-free rate4.0 %1.9 %
Expected dividend yield0.59 %0.40 %
Expected volatility39 %37 %
Expected term (in years)4.35.2
Risk-free rate
The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option.
Expected dividend yield
Generally, the current dividend yield is calculated by annualizing the cash dividend declared by the Company’s Board of Directors and dividing that result by the closing stock price on the grant date. 
Expected volatility
The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock.
Expected term
The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time.
The weighted-average grant-date fair values of stock options granted during the three-month periods ended April 2, 2023 and April 3, 2022 were $17.79 and $22.45, respectively.
The total intrinsic values of stock options exercised for the three-month periods ended April 2, 2023 and April 3, 2022 were $3,439,000 and $2,615,000, respectively. The total fair values of stock options vested for the three-month periods ended April 2, 2023 and April 3, 2022 were $31,181,000 and $25,535,000, respectively.
Restricted Stock Units (RSUs)
The following table summarizes the Company's RSUs activity for the three-month period ended April 2, 2023:
Shares
(in thousands)		Weighted-Average
Grant Date Fair Value
Nonvested as of December 31, 20221,269 $61.74 
Granted635 46.61 
Vested(453)59.11 
Forfeited or expired(32)66.98 
Nonvested as of April 2, 20231,419 $55.69 
The fair value of RSUs is determined based on the observable market price of the Company's stock on the grant date less the present value of expected future dividends. The weighted-average grant-date fair values of RSUs granted during the three-month periods ended April 2, 2023 and April 3, 2022 were $46.61 and $63.96, respectively. There were 453,000 and 54,000 RSUs that vested during the three-month periods ended April 2, 2023 and April 3, 2022, respectively.
Performance Restricted Stock Units (PRSUs)
The following table summarizes the Company's PRSUs activity for the three-month period ended April 2, 2023:
Shares
(in thousands)		Weighted-Average
Grant Date Fair Value
Nonvested as of December 31, 202233 $62.49 
Granted46 44.86 
Vested— — 
Forfeited or expired— — 
Nonvested as of April 2, 202379 $52.23 
The fair value of PRSUs is calculated using the Monte Carlo simulation model to estimate the probability of satisfying the service and market conditions stipulated in the award grant. There were 46,000 and 33,000 PRSUs granted during the three-month periods ended April 2, 2023 and April 3, 2022, respectively. No PRSUs vested during the three-month periods ended April 2, 2023 and April 3, 2022.
Stock-Based Compensation Expense
The Company stratifies its employee population into three groups: one consisting of the CEO, one consisting of senior management, and another consisting of all other employees. The Company currently applies an estimated annual forfeiture rate of 0% to all stock-based awards for the CEO, 8% to all stock-based awards for senior management, and a rate of 13% for all other employees. Each year during the first quarter, the Company revises its forfeiture rate based on updated estimates of employee turnover. This resulted in a decrease to compensation expense of $234,000 in 2023 and an increase to compensation expense of $1,536,000 in 2022.
As of April 2, 2023, total unrecognized compensation expense, net of estimated forfeitures, related to non-vested equity awards, including stock options, RSUs, and PRSUs, was $86,841,000, which is expected to be recognized over a weighted-average period of 2.4 years.
The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended April 2, 2023 were $16,579,000 and $2,308,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended April 3, 2022 were $15,056,000 and $2,319,000, respectively. No compensation expense was capitalized as of April 2, 2023 or December 31, 2022.
The following table presents the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):
 Three-months Ended
 April 2, 2023April 3, 2022
Cost of revenue$621 $563 
Research, development, and engineering5,890 4,448 
Selling, general, and administrative10,068 10,045 
$16,579 $15,056