STOCK-BASED COMPENSATION

We recognize stock-based compensation expense in our condensed consolidated statement of operations related to all share-based awards, including grants of stock options, based on the grant date fair value of such share-based awards.

In March 2016, the FASB issued ASU No. 2016-09, Compensation: Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards, and classification on the statement of cash flows. This guidance is effective for us in the first quarter of fiscal 2018. Pursuant to the adoption of ASU No. 2016-09, we elected to record forfeitures when they occur. This change in accounting principle with regards to forfeitures was adopted using a modified retrospective approach. With the adoption of this guidance we recorded an adjustment of $0.3 million in our accumulated deficit and additional paid-in capital during the first quarter of fiscal 2018.

The amounts included in cost of revenues and operating expenses for stock-based compensation were as follows:



	Three Months Ended					Nine Months Ended
	March 31, 2018			April 1, 2017		March 31, 2018			April 1, 2017
	(Thousands)
Stock-based compensation by category of expense:
Cost of revenues	$	763		$	630	$	1,956		$	1,381
Research and development	857			590		2,582			1,573
Selling, general and administrative	2,297			1,670		6,517			4,968
	$	3,917		$	2,890	$	11,055		$	7,922
Stock-based compensation by type of award:
Stock options	$	17		$	32	$	79		$	102
Restricted stock awards	3,947			2,747		11,377			7,950
Inventory adjustment to cost of revenues	(47		)	111		(401		)	(130		)
	$	3,917		$	2,890	$	11,055		$	7,922

Included in stock-based compensation for the three and nine months ended March 31, 2018 is approximately $0.5 million and $1.8 million, respectively, in stock-based compensation cost related to the issuance of PSUs granted in August 2015 and August 2016. Included in stock-based compensation for the three and nine months ended April 1, 2017 is approximately $0.7 million and $1.9 million, respectively, in stock-based compensation cost related to the issuance of PSUs granted in August 2015 and August 2016. We recorded no stock-based compensation expense related to the issuance of PSUs granted in August 2017 as we determined that the achievement of the performance conditions associated with these PSUs was not probable as of March 31, 2018. The amount of stock-based compensation expense recognized in any one period related to PSUs can vary based on the achievement or anticipated achievement of the performance conditions. If the performance conditions are not met or not expected to be met, no compensation cost would be recognized on the shares underlying the PSUs, and any previously recognized compensation expense related to those PSUs would be reversed.

During the three months ended March 31, 2018, we capitalized minimal stock-based compensation into inventory. During the nine months ended March 31, 2018, we capitalized $0.4 million of stock-based compensation into inventory. During the three months ended April 1, 2017, we released $0.1 million of stock-based compensation that was previously capitalized into inventory. During the nine months ended April 1, 2017, we capitalized $0.1 million of stock-based compensation into inventory. As of March 31, 2018 and July 1, 2017, we had capitalized a total of $1.0 million and $0.6 million of stock-based compensation, respectively, into inventory.

As of March 31, 2018, we had less than $0.1 million in unrecognized stock-based compensation expense related to unvested stock options, that will be recognized over a weighted-average period of 0.5 years, and $32.6 million in unrecognized stock-based compensation expense related to unvested time-based restricted stock awards, net of estimated forfeitures, that will be recognized over a weighted-average period of 2.3 years.