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 27, 2014 and December 28, 2013 was as follows (in millions):

	Three Months Ended				Six Months Ended
	December 27,		December 28,		December 27,		December 28,
	2014		2013		2014		2013
Cost of sales	$	2.3	$	2.6	$	4.7	$	5.0
Research and development	3.7		3.9		7.6		7.6
Selling, general and administrative	9.0		9.2		18.4		18.8
	$	15.0	$	15.7	$	30.7	$	31.4

Approximately $1.8 million of stock-based compensation was capitalized in inventory at December 27, 2014.

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 six months ended December 27, 2014 and December 28, 2013, the Company granted 5.2 million and 4.9 million RSUs, of which 0.7 million and 0.6 million, respectively, are 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 quarter of fiscal 2015 and fiscal 2014 was estimated to be $8.5 million and $9.2 million, respectively, and was calculated using a Monte Carlo simulation. The remaining 4.5 million and 4.3 million granted during the six months ended December 27, 2014 and December 28, 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 December 27, 2014, $95.9 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.

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 six months ended December 27, 2014 and December 28, 2013, the Company paid $11.9 million and $14.4 million, respectively, and classified the payments as operating cash outflows in the Consolidated Statements of Cash Flows.

Impact on Stock-based Compensation Due to Amendments of the Change of Control Benefits Plan

During the six months ended December 27, 2014, the Company amended its Change of Control Benefits Plan (the “Plan”) to add a spin-off of certain Company assets to the circumstances that could trigger benefits under the Plan as well as other revisions. In the second quarter of fiscal 2015, the Chief Executive Officer of the Company and the Chairman of the Compensation Committee approved the separation of certain executives. Pursuant to the Plan, all unvested equity awards that have been granted or issued to certain executives terminated shall become immediately and completely vested and stock options shall become fully exercisable with an extended exercise period of two years from the termination date.

The amendments resulted in a modification of equity awards for certain executives and total incremental stock-based compensation of $5.6 million, which is being amortized over the period between the modification date and the expected termination dates of the executives. The Company recognized $1.7 million of stock-based compensation resulting from the modification in the second quarter of fiscal 2015.

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 27,		December 28,
	2014		2013

Volatility of common stock	40.8	%	53.9	%
Average volatility of peer companies	53.4	%	58.6	%
Average correlation coefficient of peer companies	0.2156		0.2920
Risk-free interest rate	0.6	%	0.8	%