STOCK-BASED COMPENSATION

At March 31, 2018, 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 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 seven 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 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. RSUs granted after August 2017 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

MSUs granted to employees typically vest over a four-year cliff 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. For MSUs granted prior to September 2017, 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 SPDR S&P (the “XSD”). For MSUs granted in September 2017, the performance metrics for this program are based on the total shareholder return ("TSR") of the Company relative to the TSR of the other companies included in the XSD; these MSUs vest based upon annual performance subject to continued service through the end of the four-year cliff period. MSUs granted after August 2017 will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

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 31, 2018 and March 25, 2017, respectively:



	Three Months Ended
	March 31, 2018								March 25, 2017
	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	$	35	$	2,003	$	537	$	2,575	$	105	$	1,660	$	494	$	2,259
Research and development	13		8,725		1,339		10,077		462		7,602		1,251		9,315
Selling, general and administrative	51		7,218		684		7,953		296		5,820		609		6,725
Pre-tax stock-based compensation expense	$	99	$	17,946	$	2,560	$	20,605	$	863	$	15,082	$	2,354	$	18,299
Less: income tax effect							2,053								2,659
Net stock-based compensation expense							$	18,552							$	15,640



	Nine Months Ended
	March 31, 2018								March 25, 2017
	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	$	196	$	5,783	$	1,482	$	7,461	$	440	$	5,000	$	1,491	$	6,931
Research and development	507		24,212		3,342		28,061		1,305		22,293		3,536		27,134
Selling, general and administrative	636		21,004		1,770		23,410		1,115		16,557		1,756		19,428
Pre-tax stock-based compensation expense	$	1,339	$	50,999	$	6,594	$	58,932	$	2,860	$	43,850	$	6,783	$	53,493
Less: income tax effect							6,830								8,551
Net stock-based compensation expense							$	52,102							$	44,942

The expenses included in the Condensed Consolidated Statements of Income for RSUs include expenses related to MSUs of $2.2 million and $1.1 million for the three months ended March 31, 2018 and March 25, 2017, respectively and $5.8 million and $2.5 million for the nine months ended March 31, 2018 and March 25, 2017, 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.

There were no stock options granted in the three and nine months ended March 31, 2018 and March 25, 2017.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 31, 2018 and their activity for the nine months ended March 31, 2018:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 24, 2017	2,800,007		$	26.92
Options Granted	—		—
Options Exercised	(1,031,144	)	25.94
Options Cancelled	(21,591	)	25.81
Balance at March 31, 2018	1,747,272		$	27.65	2.0	$	54,470,797
Exercisable, March 31, 2018	1,740,428		$	27.63	2.0	$	54,281,147
Vested and expected to vest, March 31, 2018	1,747,119		$	27.64	2.0	$	54,466,463



(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 30, 2018, 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 31, 2018.

As of March 31, 2018, there was less than $0.1 million of total unrecognized stock compensation cost related to less than 0.1 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 0.3 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 $54.81 and $42.30 per share for the three months ended March 31, 2018 and March 25, 2017, respectively and $44.49 and $37.02 per share for the nine months ended March 31, 2018 and March 25, 2017, respectively.

The following table summarizes the outstanding and expected to vest RSUs and other awards as of March 31, 2018 and their activity during the nine months ended March 31, 2018:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 24, 2017	5,942,123
Restricted stock units and other awards granted	1,933,510
Restricted stock units and other awards released	(1,315,630	)
Restricted stock units and other awards cancelled	(500,528	)
Balance at March 31, 2018	6,059,475		2.8	$	357,928,876
Outstanding and expected to vest, March 31, 2018	5,061,864		2.7	$	297,738,815



(1)	Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on March 30, 2018, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 31, 2018.

The Company withheld shares totaling $9.6 million and $21.2 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 31, 2018. 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 31, 2018, there was $156.4 million of unrecognized compensation expense related to 6.1 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 (MSUs)

The Company grants MSUs to senior members of management in lieu of granting stock options. For MSUs granted prior to September 2017, 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 SPDR S&P (the “XSD”). For MSUs granted in September 2017, the performance metrics for this program are based on the total shareholder return ("TSR") of the Company relative to the TSR of the other companies included in 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 or the TSR of the companies included in the XSD, as applicable. Vesting for MSUs is contingent upon both service and market conditions and has a four-year vesting cliff period. MSUs granted in September 2017 vest based upon annual performance and are subject to continued service through the end of the four-year period, but will continue to vest post-employment at the Company for certain individuals satisfying specific eligibility requirements.

The weighted-average fair value of MSUs granted was $51.03 and $37.29 per share for the nine months ended March 31, 2018 and March 25, 2017, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of March 31, 2018 and their activity during the nine months ended March 31, 2018:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 24, 2017	818,028
Market stock units granted	292,336
Market stock units released	—
Market stock units cancelled	(10,028	)
Balance at March 31, 2018	1,100,336		2.8	$	64,721,764
Outstanding and expected to vest, March 31, 2018	680,029		2.7	$	39,999,293



(1)	Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 30, 2018, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 31, 2018.

As of March 31, 2018, there was $24.4 million of unrecognized compensation expense related to 1.1 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 2.8 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:



	Three Months Ended		Nine Months Ended
	March 31, 2018	March 25, 2017	March 31, 2018	March 25, 2017
Expected holding period (in years)	0.5 years	0.5 years	0.5 years	0.5 years
Risk-free interest rate	1.1% - 1.5%	0.5%	0.8% - 1.5%	0.5% - 0.7%
Expected stock price volatility	20.5% - 20.7%	27.2% - 28.2%	19.1% - 24.7%	22.1% - 30.4%
Dividend yield	3.0% - 3.1%	3.5% - 3.6%	3.0% - 3.4%	3.4% - 3.6%

As of March 31, 2018 and March 25, 2017, there was $3.9 million and $3.6 million, respectively, of unrecognized compensation expense related to the 2008 ESPP.