STOCK-BASED COMPENSATION

At March 26, 2016, the Company had one stock incentive plan, the Company's Amended and Restated 1996 Stock Incentive Plan (the “1996 Plan”) and one employee stock purchase plan, the 2008 Employee Stock Purchase Plan (the “2008 ESP Plan”). The 1996 Plan was adopted by the Board of Directors to provide the grant of stock options, restricted stock units (“RSUs”), and restricted stock and performance shares, including market stock units (“MSUs”) to employees, directors, and consultants.

Pursuant to the 1996 Plan, the exercise price for all stock options is determined to be the fair market value of the underlying shares on the date of grant. Options typically vest ratably over a four-year period measured from the date of grant. Stock options expire no later than ten years after the date of grant, subject to earlier termination upon an optionee's cessation of employment or service.

RSUs granted to employees typically vest ratably over a four-year period and are converted into shares of the Company's common stock upon vesting, subject to the employee's continued service to the Company over that period.

MSUs granted to employees have a four-year measurement period and are converted into shares of the Company's common stock at the end of the measurement period and upon vesting, subject to the employee's continued service to the Company over that period. The number of shares that are released at the end of the performance period can range from zero to a maximum cap of two hundred percent (200%) of target depending on the Company's performance in comparison to the Semiconductor Exchange Traded Fund index, (the “XSD”). The performance metrics of this program are based on relative performance of the Company’s stock price as compared to the XSD during the measurement period.

The following tables show 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 and nine months ended March 26, 2016 and March 28, 2015, respectively:



	Three Months Ended
	March 26, 2016								March 28, 2015
	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	$	120	$	1,182	$	629	$	1,931	$	351	$	2,136	$	588	$	3,075
Research and development	895		7,587		1,522		10,004		637		7,208		1,620		9,465
Selling, general and administrative	795		4,507		638		5,940		764		4,628		655		6,047
Pre-tax stock-based compensation expense	$	1,810	$	13,276	$	2,789	$	17,875	$	1,752	$	13,972	$	2,863	$	18,587
Less: income tax effect							1,989								3,249
Net stock-based compensation expense							$	15,886							$	15,338



	Nine Months Ended
	March 26, 2016								March 28, 2015
	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	$	735	$	5,140	$	1,808	$	7,683	$	1,051	$	6,186	$	1,662	$	8,899
Research and development	2,608		20,671		3,904		27,183		4,372		24,455		4,182		33,009
Selling, general and administrative	2,415		14,271		1,705		18,391		3,223		14,889		1,762		19,874
Pre-tax stock-based compensation expense	$	5,758	$	40,082	$	7,417	$	53,257	$	8,646	$	45,530	$	7,606	$	61,782
Less: income tax effect							8,046								9,886
Net stock-based compensation expense							$	45,211							$	51,896

The expenses included in the Condensed Consolidated Statements of Income related to RSUs include expenses related to MSUs of $0.7 million and $0.5 million for the three months ended March 26, 2016 and March 28, 2015, respectively and $2.0 million and $1.4 million for the nine months ended March 26, 2016 and March 28, 2015, respectively.

Stock Options

The fair value of options granted to employees under the 1996 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
	Nine Months Ended
	March 28, 2015
Expected holding period (in years)	4.8
Risk-free interest rate	1.6	%
Expected stock price volatility	26.7	%
Dividend yield	3.2	%

There were no stock options granted in the three and nine months ended March 26, 2016 and three months ended March 28, 2015. The weighted-average fair value of stock options granted was $5.56 per share for the nine months ended March 28, 2015.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 26, 2016 and their activity for the nine months ended March 26, 2016:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 27, 2015	10,173,016		$	25.83
Options Granted	—		—
Options Exercised	(2,664,507	)	25.59
Options Cancelled	(871,493	)	33.19
Balance at March 26, 2016	6,637,016		$	24.96	3.2	$	68,806,616
Exercisable, March 26, 2016	3,412,184		$	22.12	2.3	$	44,887,722
Vested and expected to vest, March 26, 2016	6,447,265		$	24.85	3.1	$	67,202,987



(1)	Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company’s common stock on March 24, 2016, 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 March 26, 2016.

As of March 26, 2016, there was $9.2 million of total unrecognized stock compensation cost related to 3.2 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 1.4 years.

Restricted Stock Units and Other Awards

The fair value of RSUs and other awards under the Company’s 1996 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 and other awards granted was $33.15 and $31.01 per share for the three months ended March 26, 2016 and March 28, 2015, respectively.

The weighted-average fair value of RSUs and other awards granted was $29.25 and $27.31 per share for the nine months ended March 26, 2016 and March 28, 2015, respectively.

The following table summarizes the outstanding and expected to vest RSUs and other awards as of March 26, 2016 and their activity during the nine months ended March 26, 2016:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 27, 2015	7,129,985
Restricted stock units and other awards granted	2,635,734
Restricted stock units and other awards released	(1,567,397	)
Restricted stock units and other awards cancelled	(1,179,667	)
Balance at March 26, 2016	7,018,655		2.7	$	250,779,416
Outstanding and expected to vest, March 26, 2016	5,955,859		2.7	$	210,003,595



(1)	Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on March 24, 2016, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 26, 2016.

The Company withheld shares totaling $8.9 million and $20.7 million in value as a result of employee withholding taxes based on the value of the RSUs on their vesting date for the three and nine months ended March 26, 2016, respectively. 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 March 26, 2016, there was $141.8 million of unrecognized compensation expense related to 7.0 million unvested RSUs and other awards, which is expected to be recognized over a weighted average period of approximately 2.7 years.

Market Stock Units

The Company granted MSUs to senior members of management in September 2014 and September 2015. The grant of MSUs was in lieu of granting stock options. MSUs are valued based on the relative performance of the Company’s stock price as compared to the XSD. The fair value of MSUs is estimated using a Monte Carlo simulation model on the date of grant. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis. Compensation expense is recognized based on the initial valuation and is not subsequently adjusted as a result of the Company’s performance relative to that of the XSD index. Vesting for MSUs is contingent upon both service and market conditions, which is over a four-year period.

There were no MSUs granted for the three months ended March 26, 2016 and March 28, 2015.

The weighted-average fair value of MSUs granted was $29.64 and $15.64 per share for the nine months ended March 26, 2016 and March 28, 2015, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of March 26, 2016 and their activity during the nine months ended March 26, 2016:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 27, 2015	414,840
Market stock units granted	361,684
Market stock units released	—
Market stock units cancelled	(99,356	)
Balance at March 26, 2016	677,168		3.2	$	23,876,944
Outstanding and expected to vest, March 26, 2016	557,244		3.1	$	19,648,440



(1)	Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 24, 2016, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 26, 2016.

As of March 26, 2016, there was $12.7 million of unrecognized compensation expense related to 0.7 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 3.2 years.

Employee Stock Purchase Plan

Employees are granted rights to acquire common stock under the Company’s 2008 Employee Stock Purchase Plan (the “ESPP”).

The fair value of ESPP rights granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model using the following assumptions for the offering periods outstanding:



	ESPP
	Three Months Ended		Nine Months Ended
	March 26, 2016	March 28, 2015	March 26, 2016	March 28, 2015
Expected holding period (in years)	0.5	0.5	0.5	0.5
Risk-free interest rate	0.2% - 0.4%	0.1%	0.1% - 0.4%	0.1%
Expected stock price volatility	24.2% - 33.1%	21.1% - 26.4%	21.8% - 33.1%	20.7% - 26.4%
Dividend yield	3.3% - 3.6%	3.4% - 3.5%	3.3% - 3.6%	3.4% - 3.7%

As of March 26, 2016 and March 28, 2015, there was $4.7 million and $4.8 million, respectively, of unrecognized compensation expense related to the ESPP.