Stock‑Based Compensation and Employee Benefit Plans

Stock Incentive Plans

The Company makes stock based incentive awards (“Equity Awards”) and issues shares in connection with those awards under the Company’s stock incentive plans.

For the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011, Equity Awards were granted under either one or both of the Company’s Amended and Restated 2000 Incentive Plan (the “2000 Plan”) and the Company’s 2011 Performance Incentive Plan (the “2011 Plan”), and Equity Awards remained outstanding under those plans at the end of those fiscal years. At the end of those fiscal years, Equity Awards also remained outstanding under the Company’s prior 1997 Employee Stock Incentive Plan (“1997 Plan”), although no Equity Awards were granted under the 1997 plan during those fiscal years.

The 2011 Plan was adopted by the Board of Directors (the “Board”) on August 15, 2011 and approved by the shareholders of the Company on November 11, 2011. Following shareholder approval of the 2011 Plan, no further Equity Awards could be made under the 2000 Plan; however the 2000 Plan remains in effect with respect to pre-existing Equity Awards. The grant of Equity Awards under the 1997 Plan ceased in November 2004 following an amendment increasing the share limit of the 2000 Plan.

Directors, officers and employees of the Company, and certain consultants to the Company, are eligible to receive Equity Awards under the 2011 Plan. As of June 30, 2013, approximately 6,039,603 shares were available for Equity Award purposes under the 2011 Plan. The 2011 Plan has rules which determine the number of shares that apply for share limits depending whether the awards are “full value awards.” Each share issued for a “full-value award” is counted against the share limit under the 2011 Plan as 1.50 shares for every one share actually issued in connection with the award. For this purpose, a “full-value award” means any award other than a stock option or stock appreciation right.

Options granted under the Company's stock incentive plans before November 22, 2004, generally became exercisable in annual installments of 25 percent beginning on the first anniversary date, and expire after seven years. Options granted after November 22, 2004, generally became exercisable in annual installments of 33 1/3 percent beginning on the first anniversary date, and expire after five years. RSUs, other than performance- or market- based RSUs, generally vest in annual installments of 33 1/3 percent beginning on the first anniversary date, with RSUs issued in connection with non-employee director compensation vesting on the first anniversary of the grant date. Performance- or market- based RSUs generally vest upon the achievement of the performance- or market- based conditions established at the time of grant.

During the fiscal year ended June 30, 2013, the Company granted stock options to Company employees under the 2011 Plan. Subject to the terms and conditions of the 2011 Plan and applicable award documentation, those awards generally vest and become exercisable in equal installments over each of the first three anniversaries of the date of grant, with a maximum award term of five years.

The following table summarizes the stock option activity for the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011 (in thousands, except per share price data):



	Stock Option Shares		Weighted Average Option Exercise Price per Share		Weighted Average Grant Date Fair Value per Share		Aggregate Intrinsic Value
Outstanding, June 27, 2010	5,785		$	27.88			$	13,946
Granted	31		$	23.42	$	6.66
Exercised	(791	)	$	14.42			$	11,153
Expired or forfeited	(2,033	)	$	42.75
Outstanding, June 26, 2011	2,992		$	21.30			$	22,154
Granted	51		$	21.76	$	6.82
Exercised	(225	)	$	14.54			$	1,481
Expired or forfeited	(774	)	$	35.29
Outstanding, June 24, 2012	2,044		$	16.76			$	7,031
Granted	115		$	19.96	$	5.58
Exercised	(929	)	$	16.66			$	3,678
Expired or forfeited	(43	)	$	18.71
Outstanding, June 30, 2013	1,187		$	17.08			$	4,978

For the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011, the Company received proceeds of $15.5 million, $3.3 million and $11.4 million, respectively, as a result of the exercise of stock options issued under its stock based compensation plans. The tax benefit realized for the tax deductions from stock-based awards was $0.0 million, $1.7 million and $1.4 million for fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011, respectively.

The following table summarizes the stock options outstanding at June 30, 2013, and the related weighted average price and life information (in thousands, except year and price data):



	June 30, 2013
	Outstanding						Exercisable
Range of Exercise Price per Share	Number Outstanding	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value		Number Exercisable	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value
$10.28 to $12.95	373	0.79	$	12.83			373	0.78	$	12.83
$13.56 to $18.55	400	0.37	$	17.45			385	0.26	$	17.44
$18.62 to $20.78	344	2.27	$	19.33			234	1.23	$	18.93
$21.18 to $40.54	70	2.50	$	26.62			47	2.01	$	28.12
	1,187	1.18	$	17.08	$	4,978	1,039	0.74	$	16.61	$	4,843

The following table summarizes the RSU activity for the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011 (in thousands, except per share price data):



	Restricted Stock Units		Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Outstanding, June 27, 2010	452		$	18.49	$	9,113
Granted	1,984		$	21.37
Vested	(342	)	$	18.73	$	9,719
Expired or forfeited	(43	)	$	18.97
Outstanding, June 26, 2011	2,051		$	21.22	$	53,501
Granted	1,518		$	19.80
Vested	(560	)	$	22.49	$	12,821
Expired or forfeited	(104	)	$	23.84
Outstanding, June 24, 2012	2,905		$	21.72	$	57,932
Granted	1,928		$	20.77
Vested	(804	)	$	21.80	$	16,180
Expired or forfeited	(333	)	$	22.04
Outstanding, June 30, 2013	3,696		$	21.31	$	77,394

The Company's stock-based compensation plan permits the reduction of a participant’s RSUs for purposes of settling a participant’s income tax withholding obligation. During the fiscal years ended June 30, 2013, June 24, 2012 and June 26, 2011, the Company withheld RSUs representing 268,677, 185,701 and 124,363 shares, respectively, to fund participant income tax withholding obligations.

During the fiscal year ended June 30, 2013, the Company granted 1,856,473 RSUs to employees, 61,227 RSUs to members of the Board, and 10,000 RSUs to a non-employee contractor, in each case under the 2011 Plan. The RSUs provided for vesting over a period of service, subject to the terms and conditions of their respective plans and applicable award documentation. For the RSU awards made to employees and the non-employee contractor, the vesting of awards generally takes place in equal installments over each of the first three anniversaries of the date of grant. The RSU awards made to members of the Board were made as part of the Board’s annual director compensation program, under which the vesting of RSU awards takes place generally on the first anniversary of the date of grant.

During fiscal year 2011, the Company granted RSU awards with performance (non-market-based) vesting criteria to executives and certain key employees pursuant to the 2000 Plan. Under the terms of the awards, vesting took place upon the achievement of certain specified performance goals, and otherwise subject to the terms and conditions of the 2000 Plan and applicable award documentation. During the fiscal year ended June 24, 2012, the Company recorded a net credit of $1.3 million to stock compensation expense relating to these awards, based on the determination that the achievement of certain of the performance goals that the Company in the prior year had determined were probable within the time established for the awards, were no longer considered probable as of the end of fiscal year 2012. After the effect of such credit, the Company recognized $(1.1) million, and $3.8 million of expense (credit) for these awards during fiscal years 2012, and 2011, respectively, based on actual achievement or the determination that the achievement of certain of the performance goals was probable within the time established for the awards. Those RSU awards terminated following the close of the 2012 fiscal year. During fiscal year 2013, the Company did not grant any awards with performance (non-market-based) vesting criteria to executives or key employees pursuant to the 2011 Plan.

In the fourth quarter of fiscal year 2013, the Company granted 752,793 RSUs with market-based vesting criteria to executives and certain key employees pursuant to the 2011 Plan. The majority of these market-based RSU awards vest (or fail to vest) as of the end of the Company’s fiscal year 2016 but the actual number of these awards which will ultimately vest is based on the average closing market price of the Company’s common stock computed over the fourth quarter of the Company’s 2016 fiscal year, and otherwise subject to the terms and conditions of the 2011 Plan and applicable award documentation. The remainder of the market-based RSU awards vest (or fail to vest) in two separate tranches, either or both of which may vest depending on the highest average closing market price of the Company's common stock computed over any given 125 consecutive calendar day period before the end of the Company's fiscal year 2016. The fair value of these awards was estimated using the Monte Carlo Simulation method which takes into account the probability that the market conditions of these awards will be achieved. Compensation costs related to awards with a market-based condition are recognized regardless of whether the market conditions are satisfied, provided that the requisite service has been provided.

Additional information relating to the Company’s stock based compensation plans, including employee stock options and RSUs (including RSUs with performance-based and market-based vesting criteria) at June 30, 2013, June 24, 2012, and June 26, 2011, is as follows (in thousands):



	June 30, 2013	June 24, 2012	June 26, 2011
Outstanding options exercisable	1,039	1,749	1,905
Options and RSUs available for grant	6,040	8,505	510
Total reserved common stock shares for stock option plans	10,923	13,454	5,553

Forfeitures are estimated at the time of grant. Based on the Company’s historical exercise and termination data, a four percent forfeiture rate is assumed for the majority of the options and RSUs.

For the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011, stock‑based compensation expense associated with the Company’s stock options and RSUs (including RSUs with performance and/or market-based vesting criteria) was as follows (in thousands):



	Fiscal Year Ended
	June 30, 2013		June 24, 2012		June 26, 2011
Cost of sales	$	4,393	$	2,766	$	3,254
Selling, general and administrative expense	11,166		9,199		9,245
Research and development expense	6,001		4,176		3,115
Total stock‑based compensation expense	$	21,560	$	16,141	$	15,614

The total unrecognized compensation expense for outstanding stock options and RSUs was $53.6 million as of June 30, 2013. The unrecognized compensation expense for the outstanding stock options and RSUs will generally be recognized over three years. The weighted average number of years to recognize the total compensation expense for stock options and RSUs are 2.2 and 2.1, respectively. As of June 30, 2013, the Company had no RSUs with performance (non-market) based vesting conditions outstanding.

The fair value of the stock options associated with the above compensation expense for the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011, respectively, was determined at the grant date using the Black‑Scholes option pricing model with the following weighted average assumptions:



	2013		2012		2011
Expected life	3.5 years		3.5 years		3.5 years
Risk free interest rate	0.39	%	0.44	%	0.84	%
Volatility	37.56	%	42.25	%	38.34	%
Dividend yield	0.00	%	0.00	%	0.00	%

The fair value of the market-based RSUs associated with the above compensation expense for the fiscal years ended June 30, 2013, June 24, 2012, and June 26, 2011, respectively, was determined at the grant date using the Monte Carlo Simulation method with the following weighted average assumptions:



	2013		2012		2011
Expected award life	2.7 years		3.0 years		3.0 years
Risk free interest rate	0.66	%	0.41	%	0.62	%
Volatility	36.62	%	36.61	%	35.28	%
Dividend yield	0.00	%	0.00	%	0.00	%

During fiscal year 2013, the Company estimated the expected term of options using historical exercise and forfeiture data. The risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option and market-based RSU. The Company uses the historical volatility of common stock for valuing its stock options and market-based RSUs. The Company believes that historical volatility is a better indicator of expected volatility than implied volatility because a sequential period of historical data at least equal to the expected term of options and stock awards is available, and there is currently no indication that future volatility is likely to differ from historical volatility.

Employee Stock Participation Plan

The Company’s amended 1984 Employee Stock Participation Plan (“Amended ESPP”), has been suspended since April 2007. Participation in the Amended ESPP has remained suspended through fiscal year 2013. No shares have been issued during the suspension of the Amended ESPP and 755,542 shares remained un-issued at June 30, 2013.

Deferred Compensation Plan

The Company has a deferred compensation plan which provides directors, executive management and other key employees with the ability to defer the receipt of compensation in order to accumulate retirement funds on a tax deferred basis. The Company does not make contributions to the deferred compensation plan or guarantee returns on the investments. Participant deferrals and investment gains and losses remain the Company’s assets and are subject to claims of general creditors. The assets and liabilities of the deferred compensation plan are recorded at fair value each reporting period with the changes in fair value recorded in other income (expense).

The following tables present the long-term liabilities and the related assets measured at fair value on a recurring basis as of June 30, 2013 and June 24, 2012 (in thousands):



	June 30, 2013
	Total		Level 1		Level 2		Level 3
Employee deferred compensation plan liability	$	8,326	$	8,326	$	—	$	—
Assets of employee deferred compensation plan (reported in other assets)	9,472		9,472		—		—



	June 24, 2012
	Total		Level 1		Level 2		Level 3
Employee deferred compensation plan liability	$	8,139	$	8,139	$	—	$	—
Assets of employee deferred compensation plan (reported in other assets)	8,960		8,960		—		—

The Company recorded gross unrealized gains for the deferred compensation plan in other expense, net, of $0.1 million, $0.3 million and $0.4 million for fiscal years 2013, 2012 and 2011, respectively.

Employee Retirement Savings Plans

The Company sponsors a 401(k) plan which provides participating employees in the U.S. with an opportunity to accumulate funds for retirement. The Company’s contributions to the 401(k) plan were $2.2 million, $2.4 million, and $2.5 million for fiscal years 2013, 2012, and 2011, respectively.

The Company also contributes to defined contribution employee retirement savings plans for certain employees located in Europe and Asia. The Company's contributions to defined contribution retirement savings plans in Europe were $1.8 million, $1.9 million, and $2.0 million for fiscal years 2013, 2012, and 2011, respectively. The Company's contributions to defined contribution retirement savings plans in Asia were $0.1 million for each of the three fiscal years 2013, 2012, and 2011.