Shareholders' Equity and Convertible Preferred Stock

3 Months Ended

Sep. 27, 2024

Share-Based Payment Arrangement [Abstract]

Shareholders' Equity and Convertible Preferred Stock

Shareholders’ Equity and Convertible Preferred Stock

Stock-based Compensation Expense

The following tables present the Company’s stock-based compensation for equity-settled awards by type (i.e., restricted stock units (“RSUs”), restricted stock unit awards with performance conditions or market conditions (“PSUs”), and rights to purchase shares of common stock under the Company’s Employee Stock Purchase Plan (“ESPP”)) and financial statement line as well as the related tax benefit included in the Company’s Condensed Consolidated Statements of Operations:


	Three Months Ended
	September 27, 2024		September 29, 2023
	(in millions)

RSUs and PSUs	$	72	$	65
ESPP	12		12
Total	$	84	$	77


	Three Months Ended
	September 27, 2024		September 29, 2023
	(in millions)
Cost of revenue	$	14	$	13
Research and development	39		34
Selling, general and administrative	31		30

Subtotal	84		77
Tax benefit	(10)		(10)
Total	$	74	$	67

Any shortfalls or excess windfall tax benefits and tax deficiencies for shortfalls related to the vesting and exercise of stock-based awards, which are recognized as a component of the Company’s Income tax expense, were immaterial for the periods presented.

Compensation cost related to unvested RSUs, PSUs, and rights to purchase shares of common stock under the ESPP are generally amortized on a straight-line basis over the remaining average service period. The following table presents the unamortized compensation cost and weighted average service period of all unvested outstanding awards as of September 27, 2024:


	Unamortized Compensation Costs		Weighted Average Service Period
	(in millions)		(years)

RSUs and PSUs (1)	$	635	2.6
ESPP	11		0.3
Total unamortized compensation cost	$	646

(1) Weighted average service period assumes the performance conditions are met for the PSUs.

Plan Activities

RSUs and PSUs

The following table summarizes RSU and PSU activity under the Company’s incentive plans:


	Number of Shares	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value at Vest Date
	(in millions)			(in millions)



































RSUs and PSUs outstanding at June 28, 2024	13.0	$	44.42
Granted	3.9	62.58

Vested	(3.3)	44.31		$	209
Forfeited	(0.1)	51.36
RSUs and PSUs outstanding at September 27, 2024	13.5	$	51.20

RSUs and PSUs are generally settled in an equal number of shares of the Company’s common stock at the time of vesting of the units.

Convertible Preferred Stock

On January 31, 2023, the Board of Directors of the Company authorized the designation of 900,000 shares of Series A Convertible Perpetual Preferred Stock, par value $0.01 per share (the “Preferred Shares”), from the Company’s existing five million authorized but unissued shares of preferred stock and issued the Preferred Shares through a private placement. As of September 27, 2024 and June 28, 2024, 235,000 of the Preferred Shares were outstanding.

The Preferred Shares have a stated value of $1,000 per share and accrue a cumulative preferred dividend at an annual rate of 6.25% per annum (increasing to 7.25% per annum on January 31, 2030 and to 8.25% per annum on January 31, 2033) compounded on a quarterly basis. The Preferred Shares also participate in any dividends declared for common shareholders on an as-converted equivalent basis. No dividends have been declared or paid since the issuance of the Preferred Shares. As of September 27, 2024 and June 28, 2024, unpaid and cumulative dividends payable with respect to the Preferred Shares were $26 million and $22 million, respectively.

The Preferred Shares are convertible into shares of the Company’s common stock at an initial conversion rate of $47.75 per share (the “Conversion Price”) (subject to anti-dilution adjustments and certain other one-time adjustments upon the occurrence of various specified spin-off transactions) applied to the aggregate sum of the stated value of the Preferred Shares plus any cumulative accrued but unpaid dividends (the “Accumulated Stated Value”). In the event of a standalone spin-off transaction, the holders of the Preferred Shares may have one third of their Preferred Shares converted to a similar class of preferred shares of the spin-off entity. The Preferred Shares will be convertible at the option of the Company after January 31, 2026 if the closing price per share of the Company’s common stock exceeds 150% of the Conversion Price for at least 20 out of 30 consecutive trading days immediately prior to the Company’s conversion notice.

As of September 27, 2024 and June 28, 2024, the Preferred Shares outstanding had an aggregate liquidation preference of $261 million and $257 million, respectively, and would have been convertible, if otherwise permitted, into approximately 5 million shares of common stock on each such date.