Note 14. Stock-Based Compensation

Stock-Based Benefit Plans

Stock Option Plans

As of June 28, 2014, the Company had 12.9 million shares of stock options and Full Value Awards issued and outstanding to employees and directors under 2005 Acquisition Equity Incentive Plan ("the 2005 Plan"), Amended and Restated 2003 Equity Incentive Plan ("the 2003 Plan") and various other plans the Company assumed through acquisitions. The exercise price for stock options is equal to the fair value of the underlying stock at the date of grant. The Company issues new shares of common stock upon exercise of stock options. Options 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.

On November 14, 2012, the Company's shareholders approved two amendments to the 2003 Plan. The first amendment increased the number of shares that may be issued under this plan by 10,000,000 shares. The second amendment extended the 2003 Plan's terms for an additional ten year period after the date of approval of the amendment.

As of June 28, 2014, 8.2 million shares of common stock, primarily under the 2003 Plan and the 2005 Plan, were available for grant.

Employee Stock Purchase Plans

In June 1998, the Company adopted the JDS Uniphase Corporation 1998 Employee Stock Purchase Plan, as amended (the "1998 Purchase Plan"). The 1998 Purchase Plan, which became effective August 1, 1998, provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions and provides a discounted purchase price as well as a look-back period. The 1998 Purchase Plan is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986. However, the 1998 Purchase Plan is not intended to be a qualified pension, profit sharing or stock bonus plan under Section 401(a) of the Internal Revenue Code of 1986 and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The 1998 Purchase Plan will terminate upon the earlier of August 1, 2018 or the date on which all shares available for issuance have been sold. Of the 50.0 million shares authorized under the 1998 Purchase Plan, 4.4 million shares remained available for issuance as of June 28, 2014. The 1998 Purchase Plan provides a 5% discount and a six month look-back period.

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 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.

Stock-Based Compensation

The impact on the Company's results of operations of recording stock-based compensation by function for fiscal 2014, 2013 and 2012 was as follows (in millions):

	Years Ended

	June 28, 2014		June 29, 2013		June 30, 2012
Cost of sales	$	9.9	$	9.3	$	7.7
Research and development		15.6		13.5		11.6
Selling, general and administrative		38.6		33.5		29.3


	$	64.1	$	56.3	$	48.6

Approximately $1.9 million of stock-based compensation was capitalized to inventory at June 28, 2014.

Stock Option Activity

The Company granted no stock options during fiscal 2014, 2013 and 2012. The total intrinsic value of options exercised during the year ended June 28, 2014 was $10.0 million. In connection with these exercises, the tax benefit realized by the Company was immaterial due to the fact that the Company has no material benefit in foreign jurisdictions and a full valuation allowance on its domestic deferred tax assets.

As of June 28, 2014, $0.3 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 0.6 years.

The following is a summary of stock option activities (amount in millions except per share amounts):

	Options Outstanding

	Number Of Shares			Weighted-Average Exercise Price
Balance as of July 2, 2011		10.9			10.42
Exercised		(1.4	)		5.84
Forfeited		(0.6	)		7.03
Canceled		(0.7	)		26.32


Balance as of June 30, 2012		8.2			10.02
Exercised		(2.0	)		7.64
Forfeited		(0.2	)		10.86
Canceled		(0.4	)		15.69


Balance as of June 29, 2013		5.6			10.56
Exercised		(1.6	)		7.91
Canceled		(0.5	)		22.24


Balance as of June 28, 2014		3.5			10.13

The following table summarizes significant ranges of outstanding and exercisable options as of June 28, 2014:

	Options Outstanding								Options Exercisable

Range of Exercise Prices	Number of Shares		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)		Number of Shares		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)
$0.00 - 10.00		1,344,691		2.9	$	5.19	$	9.6		1,344,691		2.9	$	5.19	$	9.6
10.01 - 20.00		1,925,558		3.9		11.84		2.7		1,851,993		3.9		11.71		2.7
20.01 - 30.00		263,250		4.8		22.82		—		225,750		4.7		23.10		—
30.01 - 100.00		29		—		68.00		—		29		—		68.00		—


		3,533,528		3.6		10.13	$	12.3		3,422,463		3.6		9.90	$	12.3

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company's closing stock price of $12.35 as of June 28, 2014, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of June 28, 2014 was 2.8 million.

Employee Stock Purchase Plan Activity

The compensation expense in connection with the Company's ESPP for the year ended June 28, 2014 was $1.8 million. The expense related to the plan is recorded on a straight-line basis over the relevant subscription period.

The following table summarizes the shares issued and the fair market value at purchase date, pursuant to the Company's ESPP during the year ended June 28, 2014:

Purchase date	January 31, 2014		July 31, 2013

Shares issued		423,633		369,926
Fair market value at purchase date	$	13.29	$	14.67

As of June 28, 2014, $0.2 million of unrecognized stock-based compensation cost related to ESPP remains to be amortized. That cost is expected to be recognized through the first quarter of fiscal 2015.

Full Value Awards Activity

During fiscal 2014, 2013 and 2012, the Company's Board of Directors approved the grant of 6.0 million, 6.5 million and 5.0 million Full Value Awards to the Company's Board of Directors and employees and recorded $60.7 million, $49.4 million, and $35.7 million of such compensation expenses, respectively.

As of June 28, 2014, $78.0 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 2.0 years.

A summary of the status of the Company's non-vested Full Value Awards as of June 28, 2014 and changes during the same period is presented below (amount in millions, except per share amounts):

	Full Value Awards

	Performance shares			Non-performance shares			Total number of shares			Weighted-average grant-dated fair value
Non-vested at July 2, 2011		—			6.0			6.0		$	10.49
Awards granted		0.5			4.5			5.0			12.31
Awards vested		—			(3.0	)		(3.0	)		9.01
Awards forfeited		—			(0.8	)		(0.8	)		11.67


Non-vested at June 30, 2012		0.5			6.7			7.2			12.37
Awards granted		0.7			5.8			6.5			12.40
Awards vested		(0.1	)		(3.6	)		(3.7	)		11.74
Awards forfeited		(0.1	)		(0.9	)		(1.0	)		12.58


Non-vested at June 29, 2013		1.0			8.0			9.0			12.61
Awards granted		0.6			5.4			6.0			13.42
Awards vested		(0.4	)		(4.1	)		(4.5	)		12.26
Awards forfeited		(0.1	)		(1.0	)		(1.1	)		12.94


Non-vested at June 28, 2014		1.1			8.3			9.4			13.19

During fiscal 2014, 2013 and 2012, the Company granted 0.6 million, 0.7 million and 0.5 million MSUs. These MSUs 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 fiscal 2014, 2013 and 2012 was estimated to be $9.2 million, $10.7 million and $9.3 million respectively, and was calculated using a Monte Carlo simulation.

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 fiscal 2014, 2013 and 2012, the Company paid $21.4 million, $15.9 million and $12.8 million, respectively, and classified the payments as operating cash outflows in the Consolidated Statement 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:

	Years Ended

	June 28, 2014			June 29, 2013			June 30, 2012
Volatility of common stock		53.9	%		57.5	%		68.7	%
Average volatility of peer companies		58.6	%		58.3	%		68.4	%
Average correlation coefficient of peer companies		0.292			0.3208			0.3383
Risk-free interest rate		0.8	%		0.4	%		0.7	%

The Company estimates the fair value of ESPP using a BSM valuation model. The fair value is estimated on the date of grant using the BSM option valuation model with the following weighted-average assumptions:

	Employee Stock Purchase Plans

	2014			2013			2012
Expected term (in years)		0.5			0.5			0.5
Expected volatility		39.5	%		53.9	%		52.5	%
Risk-free interest rate		0.1	%		0.1	%		0.2	%

Expected Term: The Company's expected term is in line with the six month look-back period of its ESPP.

Expected Volatility: The Company determined that a combination of the implied volatility of its traded options and historical volatility of its stock price based on the expected term of the equity instrument most appropriately reflects market expectation of future volatility. Implied volatility is based on traded options of the Company's common stock with a remaining maturity of six months or greater.

Risk-Free Interest Rate: The Company bases the risk-free interest rate used in the BSM valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.

Expected Dividend: The BSM valuation model calls for a single expected dividend yield as an input. The Company has not paid and does not anticipate paying any dividends in the near future.