Share-Based Compensation

6 Months Ended

Jul. 30, 2023

Share-Based Payment Arrangement, Noncash Expense [Abstract]

Financial Statement Effects and Presentation

Pre-tax share-based compensation was included in the Statements of Operations as follows:


	Three Months Ended				Six Months Ended
(in thousands)	July 30, 2023		July 31, 2022		July 30, 2023		July 31, 2022
Cost of sales	$	525	$	610	$	888	$	1,385
Selling, general and administrative	9,409		8,588		13,911		14,720
Product development and engineering	3,465		4,052		7,004		8,038
Total share-based compensation	$	13,399	$	13,250	$	21,803	$	24,143

Restricted Stock Units, Employees

The Company grants restricted stock units to certain employees of which a portion are expected to be settled with shares of the Company's common stock and a portion are expected to be settled in cash. The restricted stock units that are to be settled with shares are accounted for as equity. The grant date for these awards is equal to the measurement date and they are valued as of the measurement date, based on the fair value of the Company's common stock at the grant date, and recognized as share-based compensation expense over the requisite vesting period (typically 3 or 4 years). The restricted stock units that are to be settled in cash are accounted for as liabilities and the value of the awards is re-measured at the end of each reporting period until settlement at the end of the requisite vesting period (typically 3 years). In the six months ended July 30, 2023, the Company granted to certain employees 904,752 restricted stock units that settle in shares with a weighted-average grant date fair value of $27.45, including 123,652 restricted stock units granted to the current Chief Executive Officer ("CEO") that vest quarterly over a 3-year period and 232,635 restricted stock units granted to the former CEO ("Former CEO") prior to his retirement that vest quarterly over an 18-month period. In the six months ended July 30, 2023, the Company granted to certain employees 9,432 restricted stock units that settle in cash.

Restricted Stock Units, Non-Employee Directors

The Company maintains a compensation program pursuant to which restricted stock units are granted to the Company’s directors that are not employed by the Company or any of its subsidiaries. Under the Company's director compensation program, a portion of the restricted stock units granted under the program would be settled in cash and a portion would be settled in shares of the Company's common stock. Restricted stock units awarded under the program are generally scheduled to vest on the earlier of (i) one year after the grant date or (ii) the day immediately preceding the first annual meeting of the Company's stockholders following the grant. The portion of a restricted stock unit award under the program that is to be settled in cash will, subject to vesting, be settled when the director who received the award separates from service. The portion of a restricted stock unit award under the program that is to be settled in shares of stock will, subject to vesting, be settled promptly following vesting. In the six months ended July 30, 2023, the Company granted to certain non-employee directors 37,116 restricted stock units that settle in cash and 37,116 restricted stock units that settle in shares with a weighted-average grant date fair value of $25.28.

The restricted stock units that are to be settled in cash are accounted for as liabilities. These awards are not typically settled until a non-employee director’s separation from service. The value of both the unvested and vested but unsettled awards are re-measured at the end of each reporting period until settlement. As of July 30, 2023, the total number of vested, but unsettled awards was 227,109 units and the liability associated with these awards was $5.5 million, of which $2.5 million was included in "Accrued liabilities" in the Balance Sheets relating to two previous non-employee directors currently serving short-term non-employee consultancies for the Company. The remaining $3.0 million was included in "Other long-term liabilities" in the Balance Sheets.

Total Stockholder Return ("TSR") Market-Condition Restricted Stock Units

The Company grants TSR market-condition restricted stock units (the "TSR Awards") to certain executives of the Company, which are settled in shares and accounted for as equity awards. The TSR Awards have a pre-defined market-condition, which determines the number of shares that ultimately vest, as well as a service condition. The TSR Awards are valued as of the grant date using a Monte Carlo simulation, which takes into consideration the possible outcomes pertaining to the TSR market condition and expense is recognized on a straight-line basis over the requisite service periods and is adjusted for any actual forfeitures.

In the six months ended July 30, 2023, the Company granted 170,934 TSR Awards, including 61,827 TSR Awards granted to the CEO and 109,107 TSR Awards granted to certain other executives. The market condition is determined based upon the Company’s TSR benchmarked against the TSR of the Russell 3000 Index over one, two and three year performance periods (one-third of the awards vesting each performance period). Generally, the award recipients must be employed for the entire

performance period and be an active employee at the time of vesting of the awards. The grant-date fair values per unit of the TSR Awards granted to the CEO in the six months ended July 30, 2023 for each one, two and three year performance period were $23.65, $32.78 and $38.65, respectively. The grant-date fair values per unit of the TSR Awards granted to certain other executives in the six months ended July 30, 2023 for each one, two and three year performance period were $39.47, $45.36 and $49.79, respectively. Under the terms of these awards, assuming the highest performance level of 200% with no cancellations due to forfeitures, the maximum potential number of shares that can be earned in aggregate for the cumulative fiscal years 2024, 2025 and 2026 performance periods would be 341,868 shares.

Financial Metric-Based Restricted Stock Units

The Company grants financial metric-based restricted stock units to certain executives of the Company, which are settled in shares and accounted for as equity awards. These awards have a performance condition in addition to a service condition. The number of vested shares for each performance period is determined based on the Company’s attainment of pre-established revenue and non-GAAP operating income targets for the respective performance period. The vesting for tranches after the initial performance period is dependent on revenue and non-GAAP operating income for the preceding performance period. The financial metric-based restricted stock units are valued as of the measurement date and compensation cost is recognized using the accelerated attribution method over the requisite service period based on the number of shares that are probable of attainment for each fiscal year.

In the six months ended July 30, 2023, the Company granted 109,107 financial metric-based restricted stock units with a weighted-average grant date fair value of $30.21 that vest over one, two and three year performance periods (one-third of the awards vesting each performance period). Generally, the award recipients must be employed for the entire performance period and be an active employee at the time of vesting of the awards. Under the terms of these awards, assuming the highest performance level of 200% with no cancellations due to forfeitures, the maximum potential number of shares that can be earned in aggregate for the cumulative fiscal years 2024, 2025 and 2026 performance periods would be 218,214 shares.