XML 39 R23.htm IDEA: XBRL DOCUMENT

Stock-Based Compensation

12 Months Ended

Jun. 29, 2019

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

Note 15. Stock-Based Compensation

Stock-Based Benefit Plans

Amendment and Restatement of Amended and Restated 2003 Equity Incentive Plan

On November 15, 2017, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 2003 Equity Incentive Plan (the 2003 Plan, as most recently amended and restated, the “Amended and Restated 2003 Plan”), under which, among other things:

(1) the number of shares of the Company’s Common Stock reserved under the 2003 Plan increased by the sum of (i) 4,000,000 new shares, (ii) the number of shares remaining for issuance under the Company’s 2005 Acquisition Equity Incentive Plan (“Acquisition Plan”) as of November 15, 2017, the date such Acquisition Plan was terminated (the “Restatement Date”), and (iii) the number of shares subject to outstanding stock awards granted under the Acquisition Plan that on or after Restatement Date would have otherwise been available for re-issuance under the Acquisition Plan;

(2) the 2003 Plan’s fungible share provision was eliminated; and

(3) a limit on the total value of equity and cash compensation that may be paid to each of the Company's non-employee directors during each fiscal year was set.

As such, an additional 5.5 million shares were authorized under the re-approved 2003 plan and the 2005 Acquisition Plan was terminated effective as of November 15, 2017.

Amendment and Restatement of Amended and Restated 1998 Employee Stock Purchase Plan

On November 15, 2017, the Company's stockholders approved the amendment and restatement of the Company’s Amended and Restated 1998 Employee Stock Purchase Plan (the “ESPP”, as most recently amended and restated, the “Amended and Restated ESPP”), to extend the termination date from August 1, 2018 to November 15, 2027.

Stock Option Plans

As of June 29, 2019, the Company had 7.9 million shares subject to (i) stock options and Full Value Awards (defined below) issued and outstanding under the Amended and Restated 2003 Plan, (ii) inducement grants made in connection with the appointment

of new CEO in fiscal 2016 and (iii) stock options and Full Value Awards issued and outstanding under 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 or four year period and, if not exercised, expire from five to ten years after the date of grant.

As of June 29, 2019, 10.9 million shares of common stock, primarily under the re-approved 2003 Plan, were available for grant.

Employee Stock Purchase Plans

In June 1998, the Company adopted the ESPP, which became effective August 1, 1998 and 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 ESPP is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986. The ESPP will terminate upon the earlier of November 15, 2027 or the date on which all shares available for issuance have been sold. On August 1, 2015, the number of shares available for issuance was automatically adjusted pursuant to the terms of the ESPP. As of June 29, 2019, 3.4 million shares remained available for issuance. The ESPP as adopted provided for a 5% discount and a six months look-back period. In May 2019, the ESPP was amended to provide for a 15% discount.

Full Value Awards

Full Value Awards refer to RSUs, MSUs and PSUs that are granted without an exercise price and are converted to shares immediately upon vesting. Full Value Awards are time-based, performance-based with market conditions or other performance conditions and are expected to vest over one to four years. The fair value of the time-based RSUs is based on the closing market price of the Company’s common stock on the date the award is granted.

Stock-Based Compensation

The impact on the Company’s results of operations of recording stock-based compensation expense by function for fiscal 2019, 2018 and 2017 was as follows (in millions):



	Years Ended
	June 29, 2019		June 30, 2018		July 1, 2017
Cost of revenue	$	3.8	$	3.3	$	3.6
Research and development	6.1		4.9		5.7
Selling, general and administrative	28.3		22.3		23.9
Total stock-based compensation expense	$	38.2	$	30.5	$	33.2

Approximately $1.0 million of stock-based compensation expense was capitalized to inventory at June 29, 2019.

Stock Option Activity

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



	Options Outstanding
	Number of Shares		Weighted-Average Exercise Price
Balance as of July 2, 2016	3.1		$	5.91
Exercised	(1.6	)	5.66
Balance as of July 1, 2017	1.5		6.16
Exercised	(0.2	)	4.53
Balance as of June 30, 2018	1.3		6.42
Exercised	(0.1	)	10.54
Balance as of June 29, 2019	1.2		$	5.95

Expected to vest	1.2		$	5.95

The total intrinsic value of options exercised during the fiscal year ended June 29, 2019 was $0.2 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 29, 2019, $0.4 million of unrecognized stock-based compensation expense 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 table summarizes outstanding and exercisable options as of June 29, 2019.



	Options Outstanding						Options Exercisable
Exercise Price	Number of Shares	Weighted Average Remaining Contractual Term (years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (millions)		Number of Shares	Weighted Average Remaining Contractual Term (years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (millions)
$5.95	1,180,257	4.63	5.95		$	8.7	885,193	4.63	5.95		$	6.5
	1,180,257	4.63	$	5.95	$	8.7	885,193	4.63	$	5.95	$	6.5

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $13.29 as of June 29, 2019, 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 29, 2019 was 0.9 million.

Employee Stock Purchase Plan Activity

The expense related to the ESPP is recorded on a straight-line basis over the relevant subscription period.

The following summarizes the shares purchased and issued, pursuant to the Company’s ESPP during the year ended June 29, 2019 and the fair value market value of the shares at the purchase date:



Purchase date	July 31, 2018		January 31, 2019
Shares issued	240,807		209,985
Fair market value at purchase date	$	8.67	$	10.15

As of June 29, 2019, there was $0.1 million of unrecognized stock-based compensation cost related to the ESPP that remains to be amortized. The cost will be recognized in the first quarter of fiscal 2020.

Full Value Awards Activity

A summary of the status of the Company’s non-vested Full Value Awards as of June 29, 2019 and changes during the same period is presented below (amount in millions, except per share amounts):



	Full Value Awards
	Performance Shares (1)		Non-Performance Shares		Total Number of Shares		Weighted-average Grant-dated Fair Value
Non-vested at July 2, 2016	1.0		8.4		9.4		$	6.55
Awards granted	0.6		3.7		4.3		$	7.86
Awards vested	(0.6	)	(4.5	)	(5.1	)	$	6.66
Awards forfeited	—		(1.3	)	(1.3	)	$	6.83
Non-vested at July 1, 2017	1.0		6.3		7.3		$	7.17
Awards granted	0.8		3.3		4.1		$	10.01
Awards vested	(0.6	)	(3.6	)	(4.2	)	$	7.10
Awards forfeited	(0.1	)	(0.7	)	(0.8	)	$	8.01
Non-vested at June 30, 2018	1.1		5.3		6.4		$	8.93
Awards granted	0.5		3.9		4.4		$	11.52
Awards vested	(0.6	)	(3.2	)	(3.8	)	$	8.61
Awards forfeited	—		(0.3	)	(0.3	)	$	9.63
Non-vested June 29, 2019	1.0		5.7		6.7		$	10.81

(1)

Performance Shares refer to the Company’s MSU and PSU awards, where the actual number of shares awarded upon vesting may be higher or lower than the target amount depending on the achievement of the relevant market conditions and performance goal achievement. The majority of MSUs vest in equal annual installments over three to four years based on the attainment of certain total shareholder performance measures and the employee’s continued service through the vest date. The aggregate grant-date fair value of MSUs granted during fiscal 2019, 2018 and 2017 was estimated to be $6.2 million, $4.7 million and $3.3 million, respectively, and was calculated using a Monte Carlo simulation. The Company did not grant any PSU awards in fiscal 2019 and the fair value of the PSUs granted in fiscal 2018 was $1.4 million. PSU awards vest based on the attainment of certain performance measures and the employee’s continued service through the vest date.

As of June 29, 2019, $49.3 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 1.7 years.

The Company adopted the new authoritative guidance that simplified several aspects of accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. Under the new guidance, companies can make an accounting policy election to either continue to estimate forfeitures or account for forfeitures as they occur. Upon adoption, the Company elected to account for forfeitures when they occur, on a modified retrospective basis. The Company recognized net cumulative effect of $0.6 million as an increase to accumulated deficit as of the first day of fiscal 2018. Further, the new authoritative guidance required previously unrecognized deferred tax benefits to be recorded as deferred tax assets. Upon adoption, the Company had $117.7 million of net operating loss carryforwards resulting from excess tax benefit deductions. In accordance with the new authoritative guidance, there was no impact to retained earnings resulting from adoption, as the deferred tax assets associated with these net operating loss carryforwards were fully offset by a corresponding valuation allowance. All other aspects of the guidance did not have a material effect on the Company’s consolidated financial statements.

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 29, 2019		June 30, 2018		July 1, 2017
Volatility of common stock	28.9	%	30.1	%	33.2	%
Average volatility of peer companies	31.0	%	32.6	%	36.9	%
Average correlation coefficient of peer companies	0.1383		0.1618		0.1856
Risk-free interest rate	2.6	%	1.4	%	0.7	%

The Company did not issue stock option grants during the fiscal years ended June 29, 2019, June 30, 2018 and July 1, 2017. The Company estimates the fair value ESPP purchase rights 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
	June 29, 2019		June 30, 2018		July 1, 2017
Expected term (in years)	0.5		0.5		0.5
Expected volatility	33.2	%	28.0	%	33.4	%
Risk-free interest rate	2.3	%	1.4	%	0.5	%

Expected Term: The Company's expected term for stock options was calculated utilizing the simplified method in accordance with the authoritative guidance. The Company used the simplified method as the Company does not have sufficient historical share option exercise data due to the limited number of shares granted as well as changes in the Company's business following the Separation, rendering existing historical experience less reliable in formulating expectations for current grants. The Company’s expected term for ESPP is in line with the six months look-back period of its ESPP.

Expected Volatility: The expected volatility for stock options was based on the historical volatility of the Company's common stock and its peers. The expected volatility for ESPP purchase rights was based on the historical volatility of its stock price with similar expected term.

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.