Stock-Based Compensation

9 Months Ended

Mar. 31, 2012

Stock-Based Compensation

Stock-Based Compensation

Note 13. Stock-Based Compensation

Overview

The impact on the Company’s results of operations of recording stock-based compensation by function for the three and nine months ended March 31, 2012 and April 2, 2011 was as follows (in millions):

	Three Months Ended				Nine Months Ended
	March 31,		April 2,		March 31,		April 2,
	2012		2011		2012		2011
Cost of sales	$	2.2	$	1.6	$	5.5	$	4.0
Research and development	3.1		2.3		8.8		6.2
Selling, general and administrative	8.1		7.0		23.2		19.7
	$	13.4	$	10.9	$	37.5	$	29.9

Approximately $2.3 million of stock-based compensation was capitalized in inventory at March 31, 2012.

Stock Options

The Company issues stock options that generally become exercisable over a three-year or four-year period and, if not exercised, expire from five to ten years after the date of grant.

As of March 31, 2012, $7.7 million of unrecognized stock-based compensation cost related to stock options remains to be amortized. That cost is expected to be recognized over an estimated amortization period of 1.3 years.

Employee Stock Purchase Plan

The Company’s employee stock purchase plan (“ESPP”) provides eligible employees with the opportunity to acquire an ownership interest in the Company at a discounted purchase price with a 6 month look-back period.

As of March 31, 2012, $1.0 million of unrecognized stock-based compensation cost related to the ESPP remains to be amortized. That cost is expected to be recognized through the first quarter of fiscal 2013.

Full Value Awards

“Full Value Awards” refer to Restricted Stock Units (“RSUs”) and Performance Units that are granted with the exercise price equal to zero and are converted to shares immediately upon vesting. These Full Value Awards are performance based, time based, or a combination of both and expected to vest over one year to four years. The fair value of the time based Full Value Awards is based on the closing market price of the Company’s common stock on the date of award.

For the nine months ended March 31, 2012, the Company granted 4.7 million RSUs, of which 4.1 million was granted in the first quarter of fiscal 2012. Of the 4.1 million RSUs granted in the first quarter of fiscal 2012, 0.5 million are RSUs with market conditions (“MSUs”) and represent the target amount of grants. The actual number of shares awarded upon vesting of the MSUs may be higher or lower depending upon the achievement of the relevant market conditions. The majority of MSUs vest in equal annual installments over three years based on the attainment of certain total shareholder return performance measures and the employee’s continued service through the vest date. The aggregate grant-date fair value of MSUs was estimated to be $9.0 million and was calculated using a Monte Carlo simulation. The remaining shares are mainly time based RSUs. The majority of these time based RSUs vest over three years, with 33% vesting after one year and quarterly over the remaining two years.

As of March 31, 2012, $62.3 million of unrecognized stock-based compensation cost related to Full Value Awards remains to be amortized. That cost is expected to be recognized over an estimated amortization period of 2.2 years.

Valuation Assumptions

The Company estimates the fair value of stock options with service conditions and ESPP using a Black-Scholes-Merton (BSM) valuation model. The fair value is estimated on the date of grant using the BSM option valuation model with the following weighted-average assumptions:

	Employee Stock Option Plans			Employee Stock Purchase Plans
	Nine Months Ended			Nine Months Ended
	March 31,	April 2,		March 31,		April 2,
	2011(1)	2011		2011		2011
Expected term (in years)	N/A	4.8		0.5		0.5
Expected volatility	N/A	58.2	%	52.5	%	50.0	%
Risk-free interest rate	N/A	1.4	%	0.2	%	0.2	%

(1)There were no stock options granted during the nine months ended March 31, 2012.

The fair value of stock options with market conditions are estimated on the dates of grant using the Lattice valuation model.