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Stock-Based Compensation | 12 Months Ended
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Jul. 02, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Note 16. Stock-Based Compensation Stock-Based Benefit Plans Stock Option Plans On November 13, 2019, 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). An additional 10.5 million shares were authorized under the re-approved 2003 plan effective as of November 13, 2019. The Amended and Restated 2003 Plan provides for the granting of stock options, stock appreciation rights (SARs), dividend equivalent rights, restricted stocks, restricted stock units, performance units and performance shares, the vesting of which may be time-based or upon satisfaction of performance criteria or other conditions. As of July 2, 2022, the Company had 7.4 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 July 2, 2022, 11.3 million shares of common stock, primarily under Amended and Restated 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. As of July 2, 2022, 1.7 million shares remained available for issuance. The ESPP as adopted provided for a 5% discount with a look-back period of six months. In May 2019, the ESPP was amended to provide for a 15% discount. Full Value Awards The Company's stock-based compensation includes a combination of time-based RSUs and performance based MSUs and PSUs. RSUs are granted without an exercise price and are converted to shares immediately upon vesting. When 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. For performance-based awards, shares attained over target upon vesting are reflected as awards granted during the period. Time-based RSU awards will generally vest in annual or quarterly installments over a period of three to four years subject to the employees’ continuing service to the Company. The Company's performance-based MSU and PSU awards may include performance conditions, market conditions, time-based service conditions or a combination thereof and are generally expected to vest over one to four years. In addition, the actual number of shares awarded upon vesting of performance-based grants may vary from the target shares depending upon the achievement of the relevant performance or market-based conditions. Stock-Based Compensation The impact on the Company’s results of operations of recording stock-based compensation expense by function for fiscal 2022, 2021 and 2020 was as follows (in millions):
| Years Ended
| July 2, 2022 |  | July 3, 2021 |  | June 27, 2020
Cost of revenue | $ | 5.2 |  |  | $ | 4.8 |  |  | $ | 4.3 |
Research and development | 8.6 |  |  | 8.9 |  |  | 7.7 |
Selling, general and administrative | 38.5 |  |  | 34.6 |  |  | 32.6 |
Total stock-based compensation expense | $ | 52.3 |  |  | $ | 48.3 |  |  | $ | 44.6 |
Approximately $1.2 million of stock-based compensation expense was capitalized to inventory at July 2, 2022. Stock Option Activity There has been no activity for stock-based compensation expense related to stock options during the fiscal years ended July 2, 2022, July 3, 2021, and June 27, 2020. The following table summarized outstanding and exercisable options as of July 2, 2022 all of which have been fully amortized and recognized since before 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 |  |  | 1.62 |  | $ | 5.95 |  |  | $ | 8.4 |  |  | 1,180,257 |  |  | 1.62 |  | $ | 5.95 |  |  | $ | 8.4 |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $13.09 as of July 2, 2022, 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 July 2, 2022 was 1.2 million. Employee Stock Purchase Plan Activity The expense related to the ESPP is recorded on a straight-line basis over the relevant subscription period. During fiscal 2022, the Company issued shares of 294,119 and 269,988 on January 31, 2022 and July 31, 2021, respectively, as part of the ESPP. As of July 2, 2022, there was $0.2 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 2023. Full Value Awards Activity A summary of the status of the Company’s non-vested Full Value Awards as of July 2, 2022 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 June 29, 2019 | 1.0 |  |  | 5.7 |  |  | 6.7 |  |  | $ | 10.81 |  |  |
Awards granted | 0.7 |  |  | 3.2 |  |  | 3.9 |  |  | $ | 13.76 |  |  |
Awards vested | (0.7) |  |  | (3.4) |  |  | (4.1) |  |  | $ | 10.40 |  |  |
Awards forfeited | — |  |  | (0.4) |  |  | (0.4) |  |  | $ | 11.44 |  |  |
Non-vested June 27, 2020 | 1.0 |  |  | 5.1 |  |  | 6.1 |  |  | $ | 12.97 |  |  |
Awards granted | 1.3 |  |  | 3.3 |  |  | 4.6 |  |  | $ | 14.15 |  |  |
Awards vested | (0.6) |  |  | (3.1) |  |  | (3.7) |  |  | $ | 12.58 |  |  |
Awards forfeited | (0.2) |  |  | (0.5) |  |  | (0.7) |  |  | $ | 13.83 |  |  |
Non-vested July 3, 2021 | 1.5 |  |  | 4.8 |  |  | 6.3 |  |  | $ | 13.98 |  |  |
Awards granted | 0.4 |  |  | 2.4 |  |  | 2.8 |  |  | $ | 16.95 |  |  |
Awards vested | (0.4) |  |  | (2.2) |  |  | (2.6) |  |  | $ | 13.38 |  |  |
Awards forfeited | (0.1) |  |  | (0.2) |  |  | (0.3) |  |  | $ | 14.64 |  |  |
Non-vested July 2, 2022 | 1.4 |  |  | 4.8 |  |  | 6.2 |  |  | $ | 15.55 |  |  |
(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 2022, 2021 and 2020 was estimated to be $7.9 million, $15.6 million and $7.7 million, respectively, and was calculated using a Monte Carlo simulation. The fair value of PSU awards granted in fiscal 2021 was $2.0 million. The Company did not grant any PSU awards in fiscal 2022 and 2020. PSU awards vest based on the attainment of certain performance measures and the employee’s continued service through the vest date. As of July 2, 2022, $58.9 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 1.8 years. Valuation Assumptions The Company generally estimates the fair value of time-based RSU awards based on the closing market price of the Company’s common stock on the date of grant. In the case of PSUs that are performance-based awards without a market condition, the Company will estimate the fair value of the awards using a probability weighted model. In the case of MSUs or PSUs, that are performance based awards and include a market condition, the Company will estimate the fair value of the award using a combination of the closing market price of the Company’s common stock on the grant date and the Monte Carlo simulation model. The weighted-average assumptions used to measure fair value were as follows:
| Years Ended
| July 2, 2022 |  | July 3, 2021 |  | June 27, 2020
Volatility of common stock | 33.8 | % |  | 38.5 | % |  | 30.4 | %
Average volatility of peer companies | 58.7 | % |  | 65.7 | % |  | 52.5 | %
Average correlation coefficient of peer companies | 0.3442 |  |  | 0.3653 |  |  | 0.1842 |
Risk-free interest rate | 0.2 | % |  | 0.3 | % |  | 1.5 | %
The Company did not issue stock option grants during the fiscal years ended July 2, 2022, July 3, 2021 and June 27, 2020. 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
|  |  | July 2, 2022 |  | July 3, 2021 |  | June 27, 2020
Expected term (in years) |  |  | 0.5 |  | 0.5 |  | 0.5
Expected volatility |  |  | 24.3 | % |  | 44.9 | % |  | 27.6 | %
Risk-free interest rate |  |  | 0.3 | % |  | 0.1 | % |  | 1.8 | %
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 from Lumentum, rendering existing historical experience less reliable in formulating expectations for current grants. The Company’s purchase right period is six months under the 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.

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