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 29, 2014, June 30, 2013, and June 24, 2012, Equity Awards were granted under the Company’s 2011 Performance Incentive Plan (the “2011 Plan”), and Equity Awards remained outstanding under the 2011 Plan at the end of each of those fiscal years. At the end of those fiscal years, Equity Awards also remained outstanding under the Company’s prior Amended and Restated 2000 Incentive Plan (the "2000 Plan"), and the Company's prior 1997 Employee Stock Incentive Plan (“1997 Plan”).

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 29, 2014, approximately 4,275,927 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.

Stock Options

During the fiscal year ended June 29, 2014, 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, and expire after five years.

The following table summarizes the stock option activity for the fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012 (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 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
Granted	16		$	24.90	$	6.72
Exercised	(886	)	$	15.97			$	7,702
Expired or forfeited	(43	)	$	14.90
Outstanding, June 29, 2014	274		$	21.47			$	1,852

For the fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012, the Company received proceeds of $14.1 million, $15.5 million and $3.3 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 $0.2 million, $0.0 million and $1.7 million for fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012, respectively.

The following table summarizes the stock options outstanding at June 29, 2014, and the related weighted average price and life information (in thousands, except year and price data):



	June 29, 2014
	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
$15.82 to $19.19	92	0.62	$	18.66			88	0.47	$	18.72
$20.15 to $22.72	141	3.23	$	20.70			60	2.99	$	21.00
$24.39 to $32.07	17	3.99	$	25.80			3	1.50	$	28.93
$32.20 to $34.27	24	0.42	$	33.88			24	0.42	$	33.88
	274	2.15	$	21.47	$	1,852	175	1.35	$	21.77	$	1,186

RSU Awards

During the fiscal year ended June 29, 2014, the Company granted 1,105,259 RSUs to employees and 43,704 RSUs to members of the Board, 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, 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.

In the fourth quarter of fiscal year 2014, the Company granted RSUs with market-based vesting criteria representing up to 495,081 shares to executives and certain key employees pursuant to the 2011 Plan. These market-based RSU awards could potentially vest in any or each of the three consecutive quarters beginning with the final quarter of fiscal year 2017. The actual number of awards that will ultimately vest in each of the three quarters is based on the average closing price of the Company's common stock for that quarter, and in no event can the total number of shares vested in all three quarters exceed the total number of shares designated in the market-based RSU awards granted. Any of these awards that remain unvested as of the end of the second quarter of fiscal year 2018 will be forfeited. 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.

The following table summarizes the RSU activity for the fiscal years ended June 29, 2014, June 30, 2013, and June 24, 2012 (in thousands, except per share price data):



	Restricted Stock Units		Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
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
Granted	1,644		$	24.36
Vested	(1,065	)	$	21.44	$	28,644
Expired or forfeited	(450	)	$	15.22
Outstanding, June 29, 2014	3,825		$	19.26	$	105,791

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 29, 2014, June 30, 2013 and June 24, 2012, the Company withheld RSUs representing 348,502 shares, 268,677 shares, and 185,701 shares, respectively, to fund participant income tax withholding obligations.

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 of credit for these awards during fiscal year 2012 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.

Additional information

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 29, 2014, June 30, 2013, and June 24, 2012, is as follows (in thousands):



	June 29, 2014	June 30, 2013	June 24, 2012
Outstanding options exercisable	175	1,039	1,749
Options and RSUs available for grant	4,276	6,040	8,505
Total reserved common stock shares for equity awards	8,375	10,923	13,454

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 29, 2014, June 30, 2013, and June 24, 2012, 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 29, 2014		June 30, 2013		June 24, 2012
Cost of sales	$	5,242	$	4,393	$	2,766
Selling, general and administrative expense	13,144		11,166		9,199
Research and development expense	8,108		6,001		4,176
Total stock‑based compensation expense	$	26,494	$	21,560	$	16,141

The total unrecognized compensation expense for outstanding stock options and RSUs was $62.8 million as of June 29, 2014. The weighted average number of years to recognize the total compensation expense for stock options and RSUs are 1.52 and 2.33, respectively. As of June 29, 2014, 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 29, 2014, June 30, 2013, and June 24, 2012, respectively, was determined at the grant date using the Black‑Scholes option pricing model with the following weighted average assumptions:



	2014		2013		2012
Expected life	3.5 years		3.5 years		3.5 years
Risk free interest rate	0.79	%	0.39	%	0.44	%
Volatility	35.41	%	37.56	%	42.25	%
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 29, 2014, June 30, 2013, and June 24, 2012, respectively, was determined at the grant date using the Monte Carlo Simulation method with the following weighted average assumptions:



	2014		2013		2012
Expected award life	3.5 years		2.7 years		3.0 years
Risk free interest rate	1.08	%	0.66	%	0.41	%
Volatility	34.70	%	36.62	%	36.61	%
Dividend yield	0.00	%	0.00	%	0.00	%

During fiscal year 2014, 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 2014. No shares have been issued during the suspension of the Amended ESPP and 755,542 shares remained un-issued at June 29, 2014.

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 expense, net.

The following tables present the long-term liabilities and the related assets measured at fair value on a recurring basis as of June 29, 2014 and June 30, 2013 (in thousands):



	June 29, 2014
	Total		Level 1		Level 2		Level 3
Employee deferred compensation plan liability	$	9,844	$	9,844	$	—	$	—
Assets of employee deferred compensation plan (reported in other assets)	10,534		10,534		—		—



	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		—		—

The Company recorded gross unrealized gains for the deferred compensation plan in other expense, net, of $0.2 million, $0.1 million and $0.3 million for fiscal years 2014, 2013 and 2012, 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 $2.5 million, $2.2 million, and $2.4 million for fiscal years 2014, 2013, and 2012, 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 $2.3 million, $1.8 million, and $1.9 million for fiscal years 2014, 2013, and 2012, respectively. The Company's contributions to defined contribution retirement savings plans in Asia were $0.1 million for each of the three fiscal years 2014, 2013, and 2012.