STOCK-BASED COMPENSATION

At June 24, 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 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 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, (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 Consolidated Statements of Income for fiscal years 2017, 2016 and 2015:



	For the Year Ended
	June 24, 2017
	Stock Options		Restricted Stock Units and Other Awards		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	536	$	6,630	$	1,928	$	9,094
Research and development	1,654		29,504		4,514		35,672
Selling, general and administrative	1,424		22,713		2,214		26,351
Pre-tax stock-based compensation expense	$	3,614	$	58,847	$	8,656	$	71,117
Less: income tax effect							12,934
Net stock-based compensation expense							$	58,183



	For the Year Ended
	June 25, 2016
	Stock Options		Restricted Stock Units and Other Awards		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	837	$	5,697	$	2,340	$	8,874
Research and development	3,469		27,784		5,133		36,386
Selling, general and administrative	3,043		19,127		2,271		24,441
Pre-tax stock-based compensation expense	$	7,349	$	52,608	$	9,744	$	69,701
Less: income tax effect							11,314
Net stock-based compensation expense							$	58,387



	For the Year Ended
	June 27, 2015
	Stock Options		Restricted Stock Units and Other Awards		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	1,391	$	8,226	$	2,257	$	11,874
Research and development	4,783		31,899		5,375		42,057
Selling, general and administrative	3,863		19,414		2,283		25,560
Pre-tax stock-based compensation expense	$	10,037	$	59,539	$	9,915	$	79,491
Less: income tax effect							14,131
Net stock-based compensation expense							$	65,360

The expenses included in the Consolidated Statements of Income related to Restricted Stock Units and Other Awards include expenses related to Market Stock Units of $3.6 million, $2.8 million and $1.7 million for fiscal years 2017, 2016 and 2015, respectively.

Stock Options

The fair value of options granted to employees under the1996 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 Company did not grant any stock options in fiscal year 2017 or fiscal year 2016.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of June 24, 2017 and their activity during fiscal years 2017, 2016 and 2015:



	Options			Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (1)
	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	(3,168,704	)	18.39
Options Cancelled	(2,885,508	)	33.62

Balance at June 27, 2015	10,173,016		25.83
Options Granted	—		—
Options Exercised	(3,242,881	)	25.05
Options Cancelled	(995,056	)	32.67

Balance at June 25, 2016	5,935,079		25.11
Options Granted	—		—
Options Exercised	(2,741,659	)	22.98
Options Cancelled	(393,413	)	27.07

Balance at June 24, 2017	2,800,007		$26.92	2.6	$	55,880,831

Exercisable at June 24, 2017	2,059,979		$26.36	2.3	$	42,236,422

Vested and expected to vest, June 24, 2017	2,782,570		$26.90	2.6	$	55,526,775


(1)	Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company's common stock on June 23, 2017, the last business day preceding the fiscal year end, multiplied by the number of options outstanding, exercisable or vested and expected to vest as of June 24, 2017.

The following table summarizes information about stock options that were outstanding and exercisable at June 24, 2017:



	Outstanding Options			Options Exercisable
Range of Exercise Prices	Number Outstanding at June 24, 2017	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price	Number Exercisable at June 24, 2017	Weighted Average Exercise Price
$12.00 - $20.00	99,797	1.7	$18.16	99,797	$18.16
$20.01 - $30.00	2,607,002	2.6	$27.03	1,897,457	$26.57
$30.01 - $40.00	93,208	3.6	$32.99	62,725	$32.81
	2,800,007			2,059,979

The total intrinsic value of options exercised during fiscal years 2017, 2016 and 2015 were $55.1 million, $39.8 million and $45.6 million, respectively. As of June 24, 2017, there was $1.2 million of total unrecognized compensation costs related to 0.7 million unvested stock options expected to be recognized over a weighted average period of approximately 0.5 years.

Restricted Stock Units and Other Awards

The fair value of Restricted Stock Units (“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 $37.33, $29.75 and $27.92 per share for fiscal years 2017, 2016 and 2015, respectively.

The following table summarizes outstanding and expected to vest RSUs and other awards as of June 24, 2017 and their activity during fiscal years 2017, 2016 and 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 and other awards granted	3,178,117
Restricted stock units and other awards released	(2,589,639	)
Restricted stock units and other awards cancelled	(1,339,490	)

Balance at June 27, 2015	7,129,985
Restricted stock units and other awards granted	2,905,973
Restricted stock units and other awards released	(2,049,430	)
Restricted stock units and other awards cancelled	(1,365,715	)

Balance at June 25, 2016	6,620,813
Restricted stock units and other awards granted	2,237,679
Restricted stock units and other awards released	(1,876,050	)
Restricted stock units and other awards cancelled	(1,040,319	)

Balance at June 24, 2017	5,942,123		2.6	$	279,524,492

Expected to vest at June 24, 2017	4,980,900		2.6	$	233,404,993

(1) Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company's common stock on June 23, 2017, the last business day preceding the fiscal year end, multiplied by the number of RSUs and other awards outstanding, or expected to vest as of June 24, 2017.

The Company withheld shares totaling $25.2 million in value as a result of employee withholding taxes based on the value of the RSUs on their vesting date for the fiscal year ended June 24, 2017. The total payments for the employees' tax obligations to the taxing authorities are reflected as financing activities within the Consolidated Statements of Cash Flows.

As of June 24, 2017, there was $133.0 million of unrecognized compensation cost related to 5.9 million unvested RSUs and other awards, which is expected to be recognized over a weighted average period of approximately 2.6 years.

Market Stock Units

The Company granted Market Stock Units (“MSUs”) to senior members of management in September 2014, September 2015 and September 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, which is over a four-year period.

The following table summarizes the number of MSUs outstanding and expected to vest as of June 24, 2017 and their activity during fiscal years 2017, 2016 and 2015:



	Number of Shares		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (1)
Balance at June 28, 2014 (2)	120,000
Market stock units granted	423,044
Market stock units released	(42,476	)
Market stock units cancelled	(85,728	)

Balance at June 27, 2015	414,840
Market stock units granted	361,684
Market stock units released	—
Market stock units cancelled	(102,992	)

Balance at June 25, 2016	673,532
Market stock units granted	308,432
Market stock units released	—
Market stock units cancelled	(163,936	)

Balance at June 24, 2017	818,028		2.7	$	38,332,792

Expected to vest at June 24, 2017	361,961		2.7	$	16,961,472

(1) Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on June 23, 2017, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of June 24, 2017.

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

As of June 24, 2017, there was $15.6 million of unrecognized compensation cost related to 0.8 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 2.7 years.

At June 24, 2017, the Company had 25.3 million shares of its common stock available for issuance to employees and other option recipients under the 1996 Plan.

Employee Stock Purchase Plan

Employees are granted rights to acquire common stock under the Company’s 2008 Employee Stock Purchase Plan (the “ESPP”).

The Company issued 1 million shares of its common stock for total consideration of $34.3 million related to the ESPP during the fiscal year ended June 24, 2017. As of June 24, 2017, the Company had 7 million shares of its common stock reserved and available for future issuance under the ESPP.

The fair value of shares granted to employees under the ESPP in fiscal years 2017, 2016 and 2015 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 For the Year Ended
	June 24, 2017	June 25, 2016	June 27, 2015
Expected holding period (in years)	0.5	0.5	0.5
Risk-free interest rate	0.5% - 1.1%	0.1% - 0.5%	0.1	%
Expected stock price volatility	19.1% - 30.4%	21.8% - 33.1%	20.7% - 26.4%
Dividend yield	3.0% - 3.6%	3.3% - 3.6%	3.3% - 3.7%

As of June 24, 2017, there was $4.8 million of unrecognized compensation expense related to the ESPP.

Other Modifications

In September 2006, the Company suspended the issuance of shares to employees upon exercise of stock options, vesting of restricted stock units or pursuant to planned purchases of stock under the Employee Stock Participation Plan until the Company became current with all required SEC filings and its registration statements on Form S-8 were declared effective (“Blackout Period”). The Company instituted multiple programs in an attempt to compensate employees during this period.

In September 2007, the Company decided to cash-settle all options expiring during the Blackout Period (“goodwill payment”) based on the price at which 10% of the daily close prices of the Company’s common stock fall above this price for trading days from August 7, 2006 (the date on which the Company initiated a trading blackout on officers and other individuals) through the expiration date of the option. The cash payment is subject to the option holder executing a release of all claims relating to the option. The supplemental goodwill payment modification changed the classification of the associated awards from equity to liability instruments. The modification resulted in a reclassification from additional paid-in capital to accrued salaries and related expenses.

In fiscal year 2015, $7.8 million was reclassified from accrued salaries to additional paid-in capital due to the lapse of the statute of limitations of certain option holders to raise claims relating to the expired options. No reclassification occurred in fiscal years 2016 or 2017.