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 28, 2013 and September 29, 2012:



	Three Months Ended
	September 28, 2013								September 29, 2012
	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	$	349	$	1,918	$	475	$	2,742	$	398	$	2,171	$	419	$	2,988
Research and development	1,836		6,440		1,322		9,598		1,829		9,210		1,284		12,323
Selling, general and administrative	1,264		4,527		609		6,400		1,555		5,119		512		7,186
Pre-tax stock-based compensation expense	$	3,449	$	12,885	$	2,406	$	18,740	$	3,782	$	16,500	$	2,215	$	22,497
Less: income tax effect							2,729								4,832
Net stock-based compensation expense							$	16,011							$	17,665

Fair Value

The fair value of options granted to employees under the Company’s Amended and Restated 1996 Stock Incentive Plan and 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. The fair value of Restricted Stock Units (“RSUs”) 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.

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 result is analyzed by the Company to decide whether it represents expected future dividend yield. The Company also estimates forfeitures at the time of grant and makes revisions to forfeitures on a quarterly basis.

The fair value of share-based awards granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model and the following weighted-average assumptions:



	Stock Options
	Three Months Ended
	September 28, 2013		September 29, 2012
Expected holding period (in years)	5.4		5.4
Risk-free interest rate	1.4	%	0.7	%
Expected stock price volatility	35.0	%	37.8	%
Dividend yield	3.1	%	3.3	%

The weighted-average fair value of stock options granted was $6.74 and $6.24 per share for the three months ended September 28, 2013 and September 29, 2012, respectively. The weighted-average fair value of RSUs granted was $24.75 and $24.31 per share for the three months ended September 28, 2013 and September 29, 2012, respectively.

Stock Options

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of September 28, 2013 and their activity for the three months ended September 28, 2013:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 29, 2013	20,081,339		$	26.00
Options Granted	2,456,964		28.17
Options Exercised	(280,624	)	16.44
Options Cancelled	(1,513,816	)	33.62
Balance at September 28, 2013	20,743,863		$	25.83	3.7	$	125,609,822
Exercisable, September 28, 2013	9,638,371		$	28.46	1.9	$	58,056,555
Vested and expected to vest, September 28, 2013	19,380,483		$	25.83	3.6	$	120,358,593



(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 27, 2013, 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 28, 2013.

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 following table summarizes outstanding and expected to vest RSUs as of September 28, 2013 and their activity during the three months ended September 28, 2013:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 29, 2013	7,965,532
Restricted stock units granted	2,122,593
Restricted stock units released	(718,415	)
Restricted stock units cancelled	(301,364	)
Balance at September 28, 2013	9,068,346		3.0	$	272,428,197
Outstanding and expected to vest, September 28, 2013	7,951,299		2.9	$	235,437,949



(1)	Aggregate intrinsic value for RSUs represents the closing price per share of the Company’s common stock on September 27, 2013, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of September 28, 2013.

The Company withheld shares totaling $7.0 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 28, 2013. 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 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

As of September 28, 2013, there was $3.2 million of unrecognized compensation expense related to the ESPP.