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 and nine months ended March 29, 2014 and March 30, 2013:



	Three Months Ended
	March 29, 2014								March 30, 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	$	451	$	2,108	$	594	$	3,153	$	337	$	2,120	$	598	$	3,055
Research and development	2,124		7,917		1,623		11,664		1,440		7,116		1,480		10,036
Selling, general and administrative	1,391		5,186		663		7,240		1,157		4,764		601		6,522
Pre-tax stock-based compensation expense	$	3,966	$	15,211	$	2,880	$	22,057	$	2,934	$	14,000	$	2,679	$	19,613
Less: income tax effect							3,400								2,847
Net stock-based compensation expense							$	18,657							$	16,766



	Nine Months Ended
	March 29, 2014								March 30, 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	$	1,238	$	6,421	$	1,602	$	9,261	$	1,212	$	6,863	$	1,651	$	9,726
Research and development	6,576		23,085		4,098		33,759		5,557		24,727		4,215		34,499
Selling, general and administrative	4,131		14,709		1,806		20,646		3,998		15,035		1,697		20,730
Pre-tax stock-based compensation expense	$	11,945	$	44,215	$	7,506	$	63,666	$	10,767	$	46,625	$	7,563	$	64,955
Less: income tax effect							9,878								11,617
Net stock-based compensation expense							$	53,788							$	53,338

Volterra Substitute Awards

In connection with the Volterra acquisition, the Company issued substitute awards to certain Volterra employees. Substitute awards included options to purchase approximately 673,185 shares of Maxim Integrated's common stock at a weighted-average grant date fair value of approximately $10.56 and a weighted-average exercise price of approximately $22.26 per share and also issued approximately 418,955 restricted stock units with a weighted-average grant date fair value of $29.53. The terms of these awards were substantially the same as those granted by Volterra. The intrinsic value of these awards was substantially the same immediately prior to and after the substitution as of October 1, 2013.

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 at the date of grant using the Black-Scholes option valuation model and the following weighted-average assumptions:



	Stock Options (1)
	Three Months Ended				Nine Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
Expected holding period (in years)	4.9		4.9		5.3		5.3
Risk-free interest rate	1.6	%	0.8	%	1.4	%	0.7	%
Expected stock price volatility	30.2	%	37.5	%	34.8	%	37.8	%
Dividend yield	3.6	%	3.4	%	3.2	%	3.3	%

(1) Table excludes impact from assumptions used in valuing the Volterra substitute options granted on October 1, 2013 based on an expected holding period of 3.8 years, risk-free interest rate of 1.0%, expected stock price volatility of 27.5% and dividend yield of 3.4%.

The weighted-average fair value of stock options granted was $5.55 and $7.39 per share for the three months ended March 29, 2014 and March 30, 2013, respectively. The weighted-average fair value of stock options granted was $7.39 and $6.69 per share for the nine months ended March 29, 2014 and March 30, 2013, respectively.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 29, 2014 and their activity for the nine months ended March 29, 2014:



	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	2,882,740		27.17
Volterra substitute options granted	673,185		22.26
Options Exercised	(2,267,719	)	18.07
Options Cancelled	(3,042,128	)	32.25
Balance at March 29, 2014	18,327,417		$	26.04	3.6	$	148,116,516
Exercisable, March 29, 2014	8,592,118		$	27.62	1.9	$	69,970,388
Vested and expected to vest, March 29, 2014	17,245,995		$	26.01	3.5	$	141,248,804



(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 28, 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 March 29, 2014.

As of March 29, 2014, there was $40.7 million of total unrecognized stock compensation cost related to 9.7 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 2.8 years.

As of March 30, 2013, there was $35.3 million of total unrecognized stock compensation cost related to 10.2 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 2.8 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 $29.57 and $29.48 per share for the three months ended March 29, 2014 and March 30, 2013, respectively. The weighted-average fair value of RSUs granted was $26.31 and $25.08 per share for the nine months ended March 29, 2014 and March 30, 2013, respectively.

The following table summarizes outstanding and expected to vest RSUs as of March 29, 2014 and their activity during the nine months ended March 29, 2014:



	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	3,387,079
Volterra substitute restricted stock units granted	418,955
Restricted stock units released	(2,141,883	)
Restricted stock units cancelled	(903,922	)
Balance at March 29, 2014	8,725,761		2.7	$	284,624,813
Outstanding and expected to vest, March 29, 2014	7,626,649		2.7	$	249,086,361



(1)	Aggregate intrinsic value for RSUs represents the closing price per share of the Company’s common stock on March 28, 2014, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 29, 2014.

The Company withheld shares totaling $8.4 million and $22.5 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 29, 2014, 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 29, 2014, there was $146.3 million of unrecognized compensation expense related to 8.7 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 2.7 years.

As of March 30, 2013, there was $127.6 million of unrecognized compensation expense related to 8.7 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 2.7 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.

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



	ESPP
	Three Months Ended				Nine Months Ended
	March 29, 2014		March 30, 2013		March 29, 2014		March 30, 2013
Expected holding period (in years)	0.5		0.5		0.5		0.5
Risk-free interest rate	0.1	%	0.1	%	0.1	%	0.1	%
Expected stock price volatility	21.7	%	26.1	%	21.7	%	26.1	%
Dividend yield	3.7	%	3.6	%	3.7	%	3.6	%

As of March 29, 2014, there was $4.9 million of unrecognized compensation expense related to the ESPP.