Stock-based Compensation and Stockholders’ Equity

Share Repurchase Program

In July 2016, the Company’s Board of Directors adopted a program to repurchase from time to time at management’s discretion up to $100,000,000 of the Company’s common stock in the open market or in private transactions during the next twelve months at prevailing market prices. Repurchases will be made under the program using the Company’s own cash resources. This share repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be suspended at any time at the Company’s discretion. In July 2016, the Company purchased 513,194 shares of the Company's common stock in the open market at a weighted average price of $19.97 for $10,259,000.

Equity Incentive Plan

In January 2016, the Board of Directors approved the 2016 Equity Incentive Plan (the "2016 Plan") and reserved for issuance 4,700,000 shares of common stock for awards of stock options, stock appreciation rights, restricted stock, restricted stock units and other equity-based awards. The 2016 Plan was approved by the stockholders of the Company and became effective on March 8, 2016. As of such date, 8,696,444 shares of common stock were reserved for outstanding awards under the Company's 2006 Equity Incentive Plan (the "2006" Plan). Such awards remained outstanding under the 2006 Plan following the adoption of the 2016 Plan, although no further awards will be granted under the 2006 Plan. Up to 2,800,000 shares subject to awards that remained outstanding under the 2006 Plan but that are forfeited in the future will become available for use under the 2016 Plan. In addition, 1,153,412 shares of common stock originally reserved for issuance under the 2006 Plan were cancelled upon the adoption of the 2016 Plan. Under the 2016 Plan, the exercise price per share for incentive stock options granted to employees owning shares representing more than 10% of the Company at the time of grant cannot be less than 110% of the fair value of the underlying share on grant date. Nonqualified stock options and incentive stock options granted to all other persons shall be granted at a price not less than 100% of the fair value. Options generally expire ten years after the date of grant. Stock options and restricted stock units generally vest over four years; 25% at the end of one year and one sixteenth per quarter thereafter. As of June 30, 2016, the Company had 4,294,003 authorized shares available for future issuance under the 2016 Plan.

Determining Fair Value

The Company's fair value of restricted stock units is based on the closing market price of the Company's common stock on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes-option-pricing formula and a single option award approach. This fair value is then amortized ratably over the requisite service periods of the awards, which is generally the vesting period.

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on a combination of the Company's peer group and the Company's historical experience.

Expected Volatility—Expected volatility is based on a combination of the Company's implied and historical volatility.

Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input and the Company has no plans to pay dividends.

Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes valuation method is based on the United States Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Estimated Forfeitures—The estimated forfeiture rate is based on the Company’s historical forfeiture rates and the estimate is revised in subsequent periods if actual forfeitures differ from the estimate.

The fair value of stock option grants for the years ended June 30, 2016, 2015 and 2014 was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:



	Years Ended June 30,
	2016			2015			2014
Risk-free interest rate	1.37% - 1.57%			1.35% - 1.76%			1.53% - 1.90%
Expected life	5.31 - 5.33 years			5.40 - 5.44 years			5.49 - 5.58 years
Dividend yield	—		%	—		%	—		%
Volatility	46.65% - 50.89%			46.93% - 49.31%			43.48% - 50.07%
Weighted-average fair value	$	12.07		$	12.72		$	7.23

The following table shows total stock-based compensation expense included in the consolidated statements of operations for the years ended June 30, 2016, 2015 and 2014 (in thousands):



	Years Ended June 30,
	2016			2015			2014
Cost of sales	$	1,098		$	901		$	941
Research and development	10,178			8,643			6,783
Sales and marketing	1,841			1,553			1,260
General and administrative	3,014			2,602			2,078
Stock-based compensation expense before taxes	16,131			13,699			11,062
Income tax impact	(4,503		)	(3,791		)	(2,426		)
Stock-based compensation expense, net	$	11,628		$	9,908		$	8,636

The cash flows resulting from the tax benefits for tax deductions resulting from the exercise of stock options and vesting of restricted stock units in excess of the compensation expense recorded for those options (excess tax benefits) issued or modified since July 1, 2006 are classified as cash from financing activities. Excess tax benefits for stock options issued prior to July 1, 2006 are classified as cash from operating activities. The Company had $3,727,000, $11,157,000 and $7,041,000 of excess tax benefits recorded in additional paid-in capital in the years ended June 30, 2016, 2015 and 2014, respectively. The Company had excess tax benefits classified as cash from financing activities of $2,855,000, $8,089,000 and $2,992,000 in the years ended June 30, 2016, 2015 and 2014, respectively, for options issued since July 1, 2006.

As of June 30, 2016, the Company’s total unrecognized compensation cost related to non-vested stock-based awards granted to employees and non-employee directors was $37,533,000, which will be recognized over a weighted-average vesting period of approximately 2.29 years.

Stock Option Activity

The following table summarizes stock option activity during the years ended June 30, 2016, 2015 and 2014 under all plans:



	Options Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)
Balance as of June 30, 2013 (8,731,818 shares exercisable at weighted average exercise price of $9.66 per share)	12,206,178		$	10.83
Granted (weighted average fair value of $7.23)	1,808,006		15.87
Exercised	(2,863,878	)	8.36
Forfeited	(244,704	)	14.25
Balance as of June 30, 2014 (7,558,631 shares exercisable at weighted average exercise price of $11.05 per share)	10,905,602		12.24
Granted (weighted average fair value of $12.72)	1,093,920		28.28
Exercised	(2,124,401	)	10.99
Forfeited	(172,278	)	18.68
Balance as of June 30, 2015 (7,208,475 shares exercisable at weighted average exercise price of $12.24 per share)	9,702,843		14.21
Granted (weighted average fair value of $12.07)	316,580		26.86
Exercised	(1,013,430	)	12.03
Forfeited	(45,126	)	19.45
Balance as of June 30, 2016	8,960,867		$	14.88	5.20	$	93,661
Options vested and expected to vest at June 30, 2016	8,887,498		$	14.79	5.18	$	93,566
Options vested and exercisable at June 30, 2016	7,495,131		$	13.35	4.63	$	87,796

The total pretax intrinsic value of options exercised during the years ended June 30, 2016, 2015 and 2014 was $18,016,000, $48,077,000 and $30,165,000, respectively.

Additional information regarding options outstanding as of June 30, 2016, is as follows:



	Options Outstanding				Options Vested and Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Term (Years)	Weighted- Average Exercise Price Per Share		Number Exercisable	Weighted- Average Exercise Price Per Share
$4.63 - 7.91	933,694	2.41	$	6.29	933,694	$	6.29
7.94 - 9.24	924,705	3.29	8.61		908,080	8.60
9.72 - 10.66	1,309,468	3.69	10.39		1,245,451	10.41
10.68 - 12.50	907,879	5.36	11.78		846,813	11.79
12.68 - 14.23	1,307,560	5.20	13.76		1,138,326	13.69
15.22 - 17.29	923,677	5.51	16.32		923,677	16.32
17.69 - 18.93	1,134,968	6.36	18.56		829,328	18.57
20.70 - 26.75	1,125,706	8.01	24.83		562,044	24.04
27.28 - 37.06	357,710	8.99	32.80		84,593	35.09
39.19	35,500	8.62	39.19		23,125	39.19
$4.63 - $39.19	8,960,867	5.20	$	14.88	7,495,131	$	13.35

Restricted Stock Unit Activity

In January 2015, the Company began to grant restricted stock units to employees. The Company grants restricted stock units to certain employees as part of its regular employee equity compensation review program as well as to selected new hires. Restricted stock units are share awards that entitle the holder to receive freely tradable shares of the Company's common stock upon vesting.

The following table summarizes restricted stock unit activity during the years ended June 30, 2016 and 2015 under all plans:



	Restricted Stock Units Outstanding		Weighted Average Grant-Date Fair Value per Share		Aggregate Intrinsic Value (in thousands)
Balance as of June 30, 2014	—		$	—
Granted	374,720		$	35.82
Vested	(14,685	)	$	35.23
Forfeited	(56,711	)	$	34.90
Balance as of June 30, 2015	303,324		$	36.02
Granted	845,870		$	28.45
Vested	(177,707	)	$	31.80
Forfeited	(44,504	)	$	29.72
Balance as of June 30, 2016	926,983		$	30.23	$	23,036

The total pretax intrinsic value of restricted stock units vested was $4,872,743 and $486,000 for the years ended June 30, 2016 and 2015, respectively. In fiscal years 2016 and 2015, upon vesting, 177,707 and 14,685 shares of restricted stock units were partially net share-settled such that the Company withheld 65,164 and 5,278 shares, respectively, with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the restricted stock units on their respective vesting dates as determined by the Company's closing stock price. Total payments for the employees' tax obligations to taxing authorities were $1,786,000 and $175,000 for the years ended June 30, 2016 and 2015, respectively, and are reflected as a financing activity within the consolidated statements of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. Pursuant to the terms of the 2016 Plan, shares withheld in connection with net-share settlements are returned to the 2016 Plan and are available for future grants under the 2016 Plan.

Restricted Stock Awards

Restricted stock awards are share awards that provide the rights to a set number of shares of the Company’s stock on the grant date. In August 2008, the Compensation Committee of the Board of Directors of the Company (the “Committee”) approved the terms of an agreement (the “Option Exercise Agreement”) with Charles Liang, a director and President and Chief Executive Officer of the Company, pursuant to which Mr. Liang exercised a fully vested option previously granted to him for the purchase of 925,000 shares. The option was exercised using a “net-exercise” procedure in which he was issued a number of shares representing the spread between the option exercise price and the then current market value of the shares subject to the option (898,205 shares based upon the market value as of the date of exercise). The shares issued upon exercise of the option are subject to vesting over five years. Vesting of the shares subject to the award may accelerate in certain circumstances pursuant to the terms of the Option Exercise Agreement. The Company determined that there is no incremental fair value of the option exchanged for the awards. The awards were fully vested as of June 30, 2014.

Restricted Stock Award Activity

The following table summarizes the Company’s restricted stock award activity for the year ended June 30, 2014:



	Restricted Stock Awards
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Nonvested stock at June 30, 2013	179,641		$	10.66
Granted	3,500		14.23
Vested	(183,141	)	10.73
Forfeited	—		—
Nonvested stock at June 30, 2014	—		—

The Company had no restricted stock award activity for the years ended June 30, 2016 and 2015. The total pretax intrinsic value of restricted stock awards vested was $1,965,000 for the year ended June 30, 2014. In fiscal year 2014, upon vesting, 183,141 shares of restricted stock awards were partially net share-settled such that the Company withheld 51,583 shares with value equivalent to the minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total shares withheld were based on the value of the restricted stock awards on their vesting date as determined by the Company’s closing stock price. Total payments for an officer's tax obligations to the taxing authorities were $681,000 for the year ended June 30, 2014, and are reflected as a financing activity within the consolidated statements of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced and retired the number of shares that would have otherwise been issued as a result of the vesting and did not represent an expense to the Company. There are no unvested restricted stock awards at June 30, 2016 and 2015.