Stock-Based Compensation

6 Months Ended

Dec. 29, 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 six months ended December 29, 2012 and December 31, 2011 was as follows (in millions):

	Three Months Ended				Six Months Ended
	December 29,		December 31,		December 29,		December 31,
	2012		2011		2012		2011
Cost of sales	$	2.1	$	1.5	$	4.3	$	3.3
Research and development	3.4		3.1		6.3		5.7
Selling, general and administrative	8.1		7.7		15.6		14.8
	$	13.6	$	12.3	$	26.2	$	23.8

Approximately $2.3 million of stock-based compensation was capitalized in inventory at December 29, 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. The Company granted no stock options in the first two quarters of fiscal 2013 or fiscal 2012.

As of December 29, 2012, $3.3 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 1.2 years.

Employee Stock Purchase Plan

The Company’s ESPP provides eligible employees an opportunity to acquire an ownership interest in the Company at a discounted purchase price with a 6-month look-back period. The fair value of ESPP is estimated on the date of offering using a Black-Scholes-Metron valuation model.

As of December 29, 2012, $0.2 million of unrecognized stock-based compensation cost related to the ESPP remains to be amortized. That cost is expected to be recognized through the third 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 six months ended December 29, 2012 and December 31, 2011, the Company granted 5.5 million and 4.4 million RSUs, of which 0.7.million and 0.5 million, respectively, are performance-based RSUs with market conditions (“MSUs”). These MSUs shares represent the target amount of grants, and 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 granted during the first six months of fiscal 2013 and fiscal 2012 was estimated to be $9.8 million and $9.3 million, respectively, and was calculated using a Monte Carlo simulation. The remaining 4.8 million and 3.9 million shares for the six months ended December 29, 2012 and December 31, 2011 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 December 29, 2012, $87.0 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 2.3 years.

Valuation Assumptions

The Company estimates the fair value of the MSUs on the date of grant using a Monte Carlo simulation with the following assumptions:

	Six Months Ended
	December 29,		December 31,
	2012		2011
Volatility of common stock	57.7	%	68.7	%
Average volatility of peer companies	58.3	%	68.4	%
Average correlation coefficient of peer companies	0.3214		0.3383
Risk-free interest rate	0.4	%	0.7	%