Note 14. 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 29, 2014 and March 30, 2013 was as follows (in millions):

	Three Months Ended				Nine Months Ended
	March 29,		March 30,		March 29,		March 30,
	2014		2013		2014		2013
Cost of sales	$	2.7	$	2.4	$	7.7	$	6.7
Research and development	4.1		3.7		11.7		10.0
Selling, general and administrative	10.1		9.2		28.9		24.8
	$	16.9	$	15.3	$	48.3	$	41.5

Approximately $1.8 million of stock-based compensation was capitalized in inventory at March 29, 2014.

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 three quarters of fiscal 2014 or fiscal 2013.

As of March 29, 2014, $0.4 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 0.8 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-Merton valuation model.

As of March 29, 2014, $0.6 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 2015.

Full Value Awards

“Full Value Awards” refer to 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.

During the nine months ended March 29, 2014 and March 30, 2013 the Company granted 5.5 million and 6.0 million RSUs, of which 0.6 million and 0.7 million, respectively, are performance-based RSUs with market conditions (“MSUs”). These MSU 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 nine months of fiscal 2014 and fiscal 2013 was estimated to be $9.2 million and $10.7 million, respectively, and was calculated using a Monte Carlo simulation. The remaining 4.9 million and 5.3 million granted during the nine months ended March 29, 2014 and March 30, 2013 are mainly time-based RSUs. The majority of these time-based RSUs vest over three years, with 33% vesting after one year and the balance vesting quarterly over the remaining two years.

As of March 29, 2014, $87.8 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 2.1 years.

Full Value Awards are converted into shares upon vesting. Shares equivalent in value to the minimum withholding taxes liability on the vested shares are withheld by the Company for the payment of such taxes. During the nine months ended March 29, 2014 and March 30, 2013 the Company paid $18.3 million and $12.8 million, respectively, and classified the payments as operating cash outflows in the Consolidated Statements of Cash Flows.

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:

	Nine Months Ended
	March 29,		March 30,
	2014		2013

Volatility of common stock	53.9	%	57.5	%
Average volatility of peer companies	58.6	%	58.3	%
Average correlation coefficient of peer companies	0.2920		0.3208
Risk-free interest rate	0.8	%	0.4	%