Stock-Based Compensation

6 Months Ended

Dec. 29, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The assumptions used to compute the fair value of stock option grants under the 2005 Equity Incentive Plan (Equity Incentive Plan) for the three and six months ended December 29, 2013 and December 30, 2012 were:



	Three Months Ended			Six months ended
	December 29, 2013	December 30, 2012	⁽¹⁾	December 29, 2013	December 30, 2012
Expected volatility	38% - 42%	N/A		37% - 42%	46% - 48%
Weighted average expected volatility	40%	N/A		39%	47%
Expected dividends	—%	N/A		—%	—%
Expected term (in years)	3.83 - 5.83	N/A		3.83 - 5.83	3.77 - 5.77
Weighted average expected term (in years)	4.67	N/A		4.68	4.61
Risk-free rate	1.07% - 1.78%	N/A		1.07% - 2.04%	0.53% - 0.94%

(1) No options were granted during the three months ended December 31, 2012.

The assumptions used to compute the fair value of the compensatory element related to the shares to be purchased under the Emulex Corporation Employee Stock Purchase Plan (Purchase Plan) for the three and six months ended December 29, 2013 and December 30, 2012 were:



	Three Months Ended		Six months ended
	December 29, 2013	December 30, 2012	December 29, 2013	December 30, 2012
Expected volatility	30%	45%	30%	45%
Expected dividends	—%	—%	—%	—%
Expected term (in years)	0.49	0.49	0.49	0.49
Risk-free rate	0.08%	0.16%	0.08%	0.16%

A summary of stock-based compensation expense, by functional line item in the condensed consolidated statements of operations is as follows:



	Three Months Ended				Six months ended
	December 29, 2013		December 30, 2012		December 29, 2013		December 30, 2012
	(in thousands)
Cost of goods sold	$	147	$	181	$	236	$	496
Engineering and development	1,132		2,214		3,036		4,912
Sales and marketing	874		941		2,076		1,686
General and administrative	1,591		2,039		2,968		3,835
	$	3,744	$	5,375	$	8,316	$	10,929

A summary of stock option activity for the six months ended December 29, 2013 is as follows:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
					(in years)	(in millions)
Options outstanding at June 30, 2013	4,220,262		$	12.28	2.47	$	0.6
Options granted	148,324		$	7.71
Options exercised	(65,586	)	$	4.83
Options expired	(833,142	)	$	19.13
Options forfeited	(45,875	)	$	7.66
Options outstanding at December 29, 2013	3,423,983		$	10.62	2.45	$	0.5
Options vested and expected to vest at December 29, 2013	3,392,376		$	10.65	2.41	$	0.5
Options exercisable at December 29, 2013	2,886,304		$	11.22	1.96	$	0.4

A summary of outstanding and unvested stock awards activity for six months ended December 29, 2013 is as follows:



	Number of Awards		Weighted Average Grant Date Fair Value
Awards outstanding at June 30, 2013	3,413,522		$	7.74
Awards granted	1,019,294		$	7.86
Awards vested	(1,215,420	)	$	8.14
Awards canceled / forfeited	(398,952	)	$	7.73
Awards outstanding at December 29, 2013	2,818,444		$	7.54
Awards vested and expected to vest at December 29, 2013	2,589,881

The Company also grants stock awards that will be settled in cash upon vesting (Cash-Settled Unit Awards), and accordingly, are liability classified and remeasured at each reporting date until the awards are settled. The Cash-Settled Unit Awards vest 30%, 30%, and 40% on the first, second and third anniversaries of the date of grant, respectively. Some of these awards are also tied to the achievement of certain performance goals established by the Board of Directors. As of December 29, 2013, the liability related to Cash-Settled Unit Awards was approximately $1.4 million.

A summary of Cash-Settled Unit Award activity for the six months ended December 29, 2013 is as follows:



	Number of Awards		Weighted Average Grant Date Fair Value
Awards outstanding at June 30, 2013	552,723		$	7.41
Awards granted	4,242		$	7.74
Awards vested	(106,862	)	$	7.74
Awards canceled / forfeited	(20,711	)	$	7.47
Awards outstanding at December 29, 2013	429,392		$	7.33
Awards vested and expected to vest at December 29, 2013	394,295

As of December 29, 2013, there was approximately $13.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plans. Such cost is expected to be recognized over a weighted-average period of approximately 1.3 years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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