Stock-Based Compensation

3 Months Ended

Sep. 29, 2012

Stock-Based Compensation

Stock-Based Compensation

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 months ended September 29, 2012 and October 1, 2011 was as follows (in millions):

	Three Months Ended
	September 29,		October 1,
	2012		2011
Cost of sales	$	2.2	$	1.8
Research and development	2.9		2.6
Selling, general and administrative	7.5		7.1
	$	12.6	$	11.5

Approximately $1.9 million of stock-based compensation was capitalized in inventory at September 29, 2012.

Stock Options

The Company issues stock options that 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. There were no stock options granted in the first quarter of fiscal 2013 or 2012.

As of September 29, 2012, $4.4 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 1.4 years.

Employee Stock Purchase Plan

The Company’s ESPP provides eligible employees with the opportunity to acquire an ownership interest in the Company at a discounted purchase price with a 6 month look-back period. The fair value of ESPP is estimated on the date of offering using a Black-Scholes-Metron valuation model.

 As of September 29, 2012, $0.6 million of unrecognized stock-based compensation cost related to the ESPP remains to be amortized. That cost is expected to be recognized through the third quarter of fiscal 2013.

Full Value Awards

“Full Value Awards” refer to Restricted Stock Units (“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.

In the first quarter of fiscal 2013 and fiscal 2012, the Company granted 5.4 million and 4.1 million RSUs, of which 658,000 and 511,240, respectively, are performance based RSUs with market conditions (“MSUs”) and represent the target amount of grants. 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 in the first quarter of fiscal 2013 and fiscal 2012 was estimated to be $9.8 million and $9.0 million, respectively, and was calculated using a Monte Carlo simulation. The remaining 4.7 million and 3.6 million shares for the first quarter of fiscal 2013 and fiscal 2012 are time based RSUs with a weighted average grant date fair value of $11.83 per share and $12.41 per share, respectively. The majority of these time based RSUs vest over three years, with 33% vesting after one year and quarterly over the remaining two years.

As of September 29, 2012, $99.2 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 2.5 years.

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:

	Three Months Ended
	September 29,		October 1,
	2012		2011
Volatility of common stock	57.7	%	68.7	%
Average volatility of peer companies	58.3	%	68.4	%
Average correlation coefficient of peer companies	0.3214		0.3383
Risk-free interest rate	0.4	%	0.7	%