Stock-Based Compensation

3 Months Ended

Sep. 27, 2014

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 27, 2014 and September 28, 2013 was as follows (in millions):

	Three Months Ended
	September 27,		September 28,
	2014		2013
Cost of sales	$	2.4	$	2.4
Research and development		3.9		3.7
Selling, general and administrative		9.4		9.6
	$	15.7	$	15.7

Approximately $1.9 million of stock-based compensation was capitalized in inventory at September 27, 2014.

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 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.

During the first quarter ended September 27, 2014 and September 28, 2013, the Company granted 4.8 million and 4.4 million RSUs, of which 0.7 million and 0.6 million, respectively, are performance-based RSUs with market conditions (“MSUs”). These MSU 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 the first quarter of fiscal 2015 and fiscal 2014 was estimated to be $8.5 million and $9.2 million, respectively, and was calculated using a Monte Carlo simulation. The remaining 4.1 million and 3.8 million granted during the first quarter ended September 27, 2014 and September 28, 2013 are mainly time-based RSUs. The majority of these time-based RSUs vest over three years, with 33% vesting after one year and the balance vesting quarterly over the remaining two years.

As of September 27, 2014, $106.5 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 2.4 years.

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 the three months ended September 27, 2014 and September 28, 2013, the Company paid $8.3 million and $11.2 million, respectively, and classified the payments as operating cash outflows in the Consolidated Statements 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:

	Three Months Ended
	September 27,		September 28,
	2014		2013

Volatility of common stock	40.8	%	53.9	%
Average volatility of peer companies	53.4	%	58.6	%
Average correlation coefficient of peer companies	0.2156		0.2920
Risk-free interest rate	0.6	%	0.8	%

- 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.

+ References+ Details