STOCK-BASED COMPENSATION

We recognize compensation expense in our statement of operations related to all share-based awards, including grants of stock options and restricted stock awards, based on the grant date fair value of such share-based awards. The grant date fair value for our restricted stock awards is based on the fair value of our common stock. The grant date fair value for our stock options was determined using the Black-Scholes stock option pricing model. No stock options have been granted in fiscal years 2016, 2017 or 2018.

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 was effective for us in the first quarter of fiscal year 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 year 2018.

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



	Year Ended
	June 30, 2018			July 1, 2017			July 2, 2016
	(Thousands)
Stock-based compensation by category of expense:
Cost of revenues	$	2,739		$	1,885		$	1,883
Research and development	3,457			2,290			1,689
Selling, general and administrative	8,768			7,020			4,629
	$	14,964		$	11,195		$	8,201
Stock-based compensation by type of award:
Stock options	$	92		$	134		$	213
Restricted stock awards	15,218			11,275			7,876
Inventory adjustment to cost of revenues	(346		)	(214		)	112
	$	14,964		$	11,195		$	8,201

As of June 30, 2018 and July 1, 2017, we capitalized $0.9 million and $0.6 million, respectively, of stock-based compensation in inventory.

Included in stock-based compensation for the fiscal years ended June 30, 2018, July 1, 2017 and July 2, 2016, is approximately $2.2 million, $3.2 million and $1.4 million, respectively, in stock-based compensation cost related to the issuance of PSUs. 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 underlying PSUs, and any previously recognized compensation expense related to those PSUs would be reversed. As of June 30, 2018, we have 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. The performance conditions associated with the PSUs issued in August 2016 and August 2015 were achieved and we are recognizing stock-based compensation expense related to these grants over the requisite service periods.

As of June 30, 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 0.3 year, and $32.2 million in unrecognized stock-based compensation expense related to unvested time-based and performance-based restricted stock awards that will be recognized over a weighted-average period of 2.3 years.