STOCK-BASED COMPENSATION

The following table shows total stock-based compensation expense by type of award, and the resulting tax effect, included in the Condensed Consolidated Statements of Income for the three months ended September 27, 2014 and September 28, 2013:



	Three Months Ended
	September 27, 2014								September 28, 2013
	Stock Options		Restricted Stock Units		Employee Stock Purchase Plan		Total		Stock Options		Restricted Stock Units		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	339	$	1,974	$	524	$	2,837	$	349	$	1,918	$	475	$	2,742
Research and development	2,147		8,832		1,343		12,322		1,836		6,440		1,322		9,598
Selling, general and administrative	1,429		5,224		608		7,261		1,264		4,527		609		6,400
Pre-tax stock-based compensation expense	$	3,915	$	16,030	$	2,475	$	22,420	$	3,449	$	12,885	$	2,406	$	18,740
Less: income tax effect							3,272								2,729
Net stock-based compensation expense							$	19,148							$	16,011

Stock Options

The fair value of options granted to employees under the Company’s Amended and Restated 1996 Stock Incentive Plan is estimated on the date of grant using the Black-Scholes option valuation model.

Expected volatilities are based on the historical volatilities from the Company’s traded common stock over a period equal to the expected term. The Company is utilizing the simplified method to estimate expected holding periods. The risk-free interest rate is based on the U.S. Treasury yield. The Company determines the dividend yield by dividing the annualized dividends per share by the prior quarter’s average stock price. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.

The fair value of options granted to employees has been estimated using the following weighted-average assumptions:



	Stock Options
	Three Months Ended
	September 27, 2014		September 28, 2013
Expected holding period (in years)	4.8		5.4
Risk-free interest rate	1.6	%	1.4	%
Expected stock price volatility	26.7	%	35.0	%
Dividend yield	3.1	%	3.1	%

The weighted-average fair value of stock options granted was $5.67 and $6.74 per share for the three months ended September 27, 2014 and September 28, 2013, respectively.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of September 27, 2014 and their activity for the three months ended September 27, 2014:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 28, 2014	16,163,644		$	25.74
Options Granted	55,576		32.76
Options Exercised	(524,614	)	16.91
Options Cancelled	(391,851	)	36.80
Balance at September 27, 2014	15,302,755		$	25.78	3.5	$	99,141,987
Exercisable, September 27, 2014	7,068,084		$	25.79	1.8	$	56,266,217
Vested and expected to vest, September 27, 2014	14,551,614		$	25.70	3.4	$	96,124,051



(1)	Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company’s common stock on September 26, 2014, the last business day preceding the fiscal quarter-end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of September 27, 2014.

As of September 27, 2014, there was $32.3 million of total unrecognized stock compensation cost related to 8.2 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 2.5 years.

As of September 28, 2013, there was $44.2 million of total unrecognized stock compensation cost related to 11.1 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 3.1 years.

Restricted Stock Units

The fair value of Restricted Stock Units (“RSUs”) under the Company’s Amended and Restated 1996 Stock Incentive Plan is estimated using the value of the Company’s common stock on the date of grant, reduced by the present value of dividends expected to be paid on the Company’s common stock prior to vesting. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.

The weighted-average fair value of RSUs granted was $25.48 and $24.75 per share for the three months ended September 27, 2014 and September 28, 2013, respectively.

The following table summarizes outstanding and expected to vest RSUs as of September 27, 2014 and their activity during the three months ended September 27, 2014:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 28, 2014	7,695,131
Restricted stock units granted	2,462,214
Restricted stock units released	(675,621	)
Restricted stock units cancelled	(216,225	)
Balance at September 27, 2014	9,265,499		3.1	$	308,410,676
Outstanding and expected to vest, September 27, 2014	8,602,824		3.0	$	265,913,281



(1)	Aggregate intrinsic value for RSUs represents the closing price per share of the Company’s common stock on September 26, 2014, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of September 27, 2014.

The Company withheld shares totaling $8.0 million in value as a result of employee withholding taxes based on the value of the RSUs on their vesting date for the three months ended September 27, 2014. The total payments for the employees’ tax obligations to the taxing authorities are reflected as financing activities within the Condensed Consolidated Statements of Cash Flows.

As of September 27, 2014, there was $187.8 million of unrecognized compensation expense related to 9.3 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 3.1 years.

As of September 28, 2013, there was $152.1 million of unrecognized compensation expense related to 9.1 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 3.0 years.

Employee Stock Purchase Plan

The fair value of rights to acquire common stock under the Company’s 2008 Employee Stock Purchase Plan (the “ESPP”) is estimated on the date of grant using the Black-Scholes option valuation model.

As of September 27, 2014, there was $3.1 million of unrecognized compensation expense related to the ESPP.