STOCK-BASED COMPENSATION

At March 25, 2017, the Company had one stock incentive plan, the Company's 1996 Stock Incentive Plan (the “1996 Plan”) and one employee stock purchase plan, the 2008 Employee Stock Purchase Plan (the “2008 ESPP”). The 1996 Plan was adopted by the Board of Directors to provide the grant of incentive stock options, non-statutory stock options, restricted stock units (“RSUs”), and performance shares, including market stock units (“MSUs”), to employees, directors, and consultants.

Pursuant to the 1996 Plan, the exercise price for incentive stock options and non-statutory 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. Options generally 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 typically vest ratably over a two to 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. The number of shares that are released at the end of the performance period can range from zero to a maximum cap depending on the Company's performance. The performance metrics of this program are based on relative performance of the Company’s stock price as compared to the Semiconductor Exchange Traded Fund index XSD (the “SPDR S&P”).

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 25, 2017 and March 26, 2016, respectively:



	Three Months Ended
	March 25, 2017								March 26, 2016
	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	$	105	$	1,660	$	494	$	2,259	$	120	$	1,182	$	629	$	1,931
Research and development	462		7,602		1,251		9,315		895		7,587		1,522		10,004
Selling, general and administrative	296		5,820		609		6,725		795		4,507		638		5,940
Pre-tax stock-based compensation expense	$	863	$	15,082	$	2,354	$	18,299	$	1,810	$	13,276	$	2,789	$	17,875
Less: income tax effect							2,659								1,989
Net stock-based compensation expense							$	15,640							$	15,886



	Nine Months Ended
	March 25, 2017								March 26, 2016
	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	$	440	$	5,000	$	1,491	$	6,931	$	735	$	5,140	$	1,808	$	7,683
Research and development	1,305		22,293		3,536		27,134		2,608		20,671		3,904		27,183
Selling, general and administrative	1,115		16,557		1,756		19,428		2,415		14,271		1,705		18,391
Pre-tax stock-based compensation expense	$	2,860	$	43,850	$	6,783	$	53,493	$	5,758	$	40,082	$	7,417	$	53,257
Less: income tax effect							8,551								8,046
Net stock-based compensation expense							$	44,942							$	45,211

The expenses included in the Condensed Consolidated Statements of Income related to RSUs include expenses related to MSUs of $1.1 million and $0.7 million for the three months ended March 25, 2017 and March 26, 2016, respectively and $2.5 million and $2.0 million for the nine months ended March 25, 2017 and March 26, 2016, respectively.

Stock Options

There were no stock options granted in the three and nine months ended March 25, 2017 and three and nine months ended March 26, 2016.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 25, 2017 and their activity for the nine months ended March 25, 2017:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 25, 2016	5,935,079		$	25.11
Options Granted	—		—
Options Exercised	(1,970,705	)	22.61
Options Cancelled	(351,285	)	25.50
Balance at March 25, 2017	3,613,089		$	26.26	2.6	$	69,109,520
Exercisable, March 25, 2017	2,473,039		$	25.27	2.3	$	49,684,566
Vested and expected to vest, March 25, 2017	3,576,218		$	26.23	2.6	$	68,414,258



(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, 2017, 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 25, 2017.

As of March 25, 2017, there was $2.2 million of total unrecognized stock compensation cost related to 1.1 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 0.7 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 $42.30 and $33.15 per share for the three months ended March 25, 2017 and March 26, 2016, respectively and $37.02 and $29.25 per share for the nine months ended March 25, 2017 and March 26, 2016, respectively.

The following table summarizes the outstanding and expected to vest RSUs and other awards as of March 25, 2017 and their activity during the nine months ended March 25, 2017:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 25, 2016	6,620,813
Restricted stock units and other awards granted	2,132,967
Restricted stock units and other awards released	(1,380,533	)
Restricted stock units and other awards cancelled	(743,139	)
Balance at March 25, 2017	6,630,108		2.8	$	297,872,452
Outstanding and expected to vest, March 25, 2017	5,421,956		2.7	$	245,939,941



(1)	Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on March 24, 2017, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 25, 2017.

The Company withheld shares totaling $8.3 million and $17.7 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 25, 2017. 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 25, 2017, there was $147.8 million of unrecognized compensation expense related to 6.6 million unvested RSUs and other awards, which is expected to be recognized over a weighted average period of approximately 2.8 years.

Market Stock Units

The Company granted MSUs to senior members of management in September 2014, 2015 and 2016. 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 Semiconductor Exchange Traded Fund index XSD (the “SPDR S&P”). 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, and has a four-year vesting cliff period.

There were no MSUs granted for the three months ended March 25, 2017 and March 26, 2016.

The weighted-average fair value of MSUs granted was $37.29 and $29.64 per share for the nine months ended March 25, 2017 and March 26, 2016, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of March 25, 2017 and their activity during the nine months ended March 25, 2017:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 25, 2016	673,532
Market stock units granted	308,432
Market stock units released	—
Market stock units cancelled	(128,520	)
Balance at March 25, 2017	853,444		2.9	$	38,712,220
Outstanding and expected to vest, March 25, 2017	677,094		2.8	$	30,712,962



(1)	Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 24, 2017, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 25, 2017.

As of March 25, 2017, there was $17.8 million of unrecognized compensation expense related to 0.9 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 2.9 years.

Employee Stock Purchase Plan

Employees are granted rights to acquire common stock under the 2008 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		ESPP
	Three Months Ended		Nine Months Ended
	March 25, 2017	March 26, 2016	March 25, 2017	March 26, 2016
Expected holding period (in years)	0.5	0.5	0.5	0.5
Risk-free interest rate	0.5%	0.2% - 0.4%	0.5% - 0.7%	0.1% - 0.4%
Expected stock price volatility	27.2% - 28.2%	24.2% - 33.1%	22.1% - 30.4%	21.8% - 33.1%
Dividend yield	3.5% - 3.6%	3.3% - 3.6%	3.4% - 3.6%	3.3% - 3.6%

As of March 25, 2017 and March 26, 2016, there was $3.6 million and $4.7 million, respectively, of unrecognized compensation expense related to the 2008 ESPP.