STOCK-BASED COMPENSATION

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 28, 2015 and March 29, 2014, respectively:



	Three Months Ended
	March 28, 2015								March 29, 2014
	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	$	351	$	2,136	$	588	$	3,075	$	451	$	2,108	$	594	$	3,153
Research and development	637		7,208		1,620		9,465		2,124		7,917		1,623		11,664
Selling, general and administrative	764		4,628		655		6,047		1,391		5,186		663		7,240
Pre-tax stock-based compensation expense	$	1,752	$	13,972	$	2,863	$	18,587	$	3,966	$	15,211	$	2,880	$	22,057
Less: income tax effect							3,249								3,400
Net stock-based compensation expense							$	15,338							$	18,657



	Nine Months Ended
	March 28, 2015								March 29, 2014
	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	$	1,051	$	6,186	$	1,662	$	8,899	$	1,238	$	6,421	$	1,602	$	9,261
Research and development	4,372		24,455		4,182		33,009		6,576		23,085		4,098		33,759
Selling, general and administrative	3,223		14,889		1,762		19,874		4,131		14,709		1,806		20,646
Pre-tax stock-based compensation expense	$	8,646	$	45,530	$	7,606	$	61,782	$	11,945	$	44,215	$	7,506	$	63,666
Less: income tax effect							9,886								9,878
Net stock-based compensation expense							$	51,896							$	53,788

The expenses included in the Condensed Consolidated Statements of Income related to Restricted Stock Units include expenses related to Market Stock Units of $0.5 million and $0.4 million for the three months ended March 28, 2015 and March 29, 2014, respectively and $1.4 million and $1.1 million for the nine months ended March 28, 2015 and March 29, 2014, respectively.

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 using the following weighted-average assumptions:



	Stock Options
	Three Months Ended				Nine Months Ended
	March 28, 2015		March 29, 2014		March 28, 2015		March 29, 2014(1)
Expected holding period (in years)	0.0		4.9		4.8		5.3
Risk-free interest rate	—	%	1.6	%	1.6	%	1.4	%
Expected stock price volatility	—	%	30.2	%	26.7	%	34.8	%
Dividend yield	—	%	3.6	%	3.2	%	3.2	%

(1) 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%.

There were no stock options granted in the three months ended March 28, 2015. The weighted-average fair value of stock options granted was $5.55 per share for the three months ended March 29, 2014. The weighted-average fair value of stock options granted was $5.56 and $7.39 per share for the nine months ended March 28, 2015 and March 29, 2014, respectively.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of March 28, 2015 and their activity for the nine months ended March 28, 2015:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 28, 2014	16,163,644		$	25.74
Options Granted	63,584		32.22
Options Exercised	(2,564,011	)	18.02
Options Cancelled	(2,220,729	)	34.68
Balance at March 28, 2015	11,442,488		$	25.77	3.4	$	117,534,290
Exercisable, March 28, 2015	5,235,910		$	24.69	1.9	$	60,468,413
Vested and expected to vest, March 28, 2015	10,964,687		$	25.68	3.3	$	113,134,387



(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 27, 2015, 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 28, 2015.

As of March 28, 2015, there was $22.5 million of total unrecognized stock compensation cost related to 6.2 million unvested stock options, which is expected to be recognized over a weighted average period of approximately 2.1 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 $31.01 and $29.57 per share for the three months ended March 28, 2015 and March 29, 2014, respectively.

The weighted-average fair value of RSUs granted was $27.31 and $26.44 per share for the nine months ended March 28, 2015 and March 29, 2014, respectively.

The following table summarizes outstanding and expected to vest RSUs as of March 28, 2015 and their activity during the nine months ended March 28, 2015:



	Number of Shares		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 28, 2014	7,880,997
Restricted stock units granted	2,689,208
Restricted stock units released	(1,985,828	)
Restricted stock units cancelled	(942,335	)
Balance at March 28, 2015	7,642,042		2.7	$	274,753,186
Outstanding and expected to vest, March 28, 2015	6,582,787		2.7	$	235,565,020



(1)	Aggregate intrinsic value for RSUs represents the closing price per share of the Company’s common stock on March 27, 2015, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of March 28, 2015.

The Company withheld shares totaling $8.4 million and $23.2 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 28, 2015, 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 28, 2015, there was $140.2 million of unrecognized compensation expense related to 7.6 million unvested RSUs, which is expected to be recognized over a weighted average period of approximately 2.7 years.

Market Stock Units

The Company began granting Market Stock Units (“MSUs”) to senior members of management in September 2014 instead of 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, (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 SPDR S&P index.

The following table summarizes the number of MSUs outstanding and expected to vest as of March 28, 2015 and their activity during the nine months ended March 28, 2015:



	Number of Shares			Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (1)
Balance at June 28, 2014	120,000		⁽²⁾
Market stock units granted	423,044
Market stock units released	(42,476	)
Market stock units cancelled	(44,168	)
Balance at March 28, 2015	456,400			3.3	$	16,332,274
Outstanding and expected to vest, March 28, 2015	456,400			3.3	$	16,332,274



(1)	Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on March 27, 2015, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of March 28, 2015.



(2)	Reflects shares previously granted to the Company’s Chief Executive Officer only.

As of March 28, 2015, there was $5.6 million of unrecognized compensation expense related to 0.5 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 3.3 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 granted to employees has been estimated at the date of grant using the Black-Scholes option valuation model and the following weighted-average assumptions:



	ESPP
	Three Months Ended				Nine Months Ended
	March 28, 2015		March 29, 2014		March 28, 2015		March 29, 2014
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	26.4	%	21.7	%	26.4	%	21.7	%
Dividend yield	3.5	%	3.7	%	3.5	%	3.7	%

As of March 28, 2015, there was $4.8 million of unrecognized compensation expense related to the ESPP.

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