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Stock-Based Compensation
 6 Months Ended
Dec. 28, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock-Based Compensation [Text Block] STOCK-BASED COMPENSATION

At December 28, 2019, 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 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. 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. 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 six months ended December 28, 2019 and December 29, 2018, respectively:

 
Three Months Ended
 
Three Months Ended
 
December 28, 2019
 
December 29, 2018
 
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
$
5

 
$
2,269

 
$
699

 
$
2,973

 
$
9

 
$
1,884

 
$
495

 
$
2,388

Research and development
4

 
9,918

 
1,514

 
11,436

 
11

 
8,693

 
1,135

 
9,839

Selling, general and administrative
55

 
8,753

 
849

 
9,657

 
58

 
8,773

 
598

 
9,429

Pre-tax stock-based compensation expense
$
64

 
$
20,940

 
$
3,062

 
$
24,066

 
$
78

 
$
19,350

 
$
2,228

 
$
21,656

Less: income tax effect
 
 
 
 
 
 
2,193

 
 
 
 
 
 
 
2,304

Net stock-based compensation expense
 
 
 
 
 
$
21,873

 
 
 
 
 
 
 
$
19,352



Six Months Ended
 
Six Months Ended

December 28, 2019

December 29, 2018

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
$
14


$
4,549


$
1,368


$
5,931


$
19


$
3,646


$
1,002


$
4,667

Research and development
8


19,403


2,909


22,320


22


17,384


2,290


19,696

Selling, general and administrative
122


18,706


1,659


20,487


114


16,417


1,259


17,790

Pre-tax stock-based compensation expense
$
144


$
42,658


$
5,936


$
48,738


$
155


$
37,447


$
4,551


$
42,153

Less: income tax effect






5,081








4,268

Net stock-based compensation expense






$
43,657








$
37,885




The expense included in the Condensed Consolidated Statements of Income for RSUs include expenses related to MSUs of $2.4 million and $2.9 million for the three months ended December 28, 2019 and December 29, 2018, respectively, and $6.8 million and $5.3 million for the six months ended December 28, 2019 and December 29, 2018, 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 six months ended December 28, 2019 and December 29, 2018.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of December 28, 2019 and related activity for the six months ended December 28, 2019:
 
Number of
Shares 
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in Years)
 
Aggregate Intrinsic Value(1)
Balance at June 29, 2019
777,413

 
$
28.30

 
 
 
 
Options Granted
—

 
—

 
 
 
 
Options Exercised
(302,708
)
 
27.82

 
 
 
 
Options Cancelled
(16,575
)
 
27.30

 
 
 
 
Balance at December 28, 2019
458,130

 
$
28.49

 
1.0
 
$
15,139,460

Exercisable, December 28, 2019
458,130

 
$
28.49

 
1.0
 
$
15,139,460

Vested and expected to vest, December 28, 2019
458,130

 
$
28.49

 
1.0
 
$
15,139,460


(1)
Aggregate intrinsic value represents the difference between the exercise price and the closing price per share of the Company’s common stock on December 27, 2019, 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 December 28, 2019.


As of December 28, 2019, there was no unrecognized stock compensation from unvested stock options.

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 $56.21 and $50.90 per share for the three months ended December 28, 2019 and December 29, 2018, respectively, and $48.30 and $54.71 per share for the six months ended December 28, 2019 and December 29, 2018, respectively.

The following table summarizes the outstanding and expected to vest RSUs and other awards as of December 28, 2019 and related activity during the six months ended December 28, 2019:
 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years) 
 
Aggregate Intrinsic
Value(1) 
Balance at June 29, 2019
4,918,306

 
 
 
 
Restricted stock units and other awards granted
1,550,765

 
 
 
 
Restricted stock units and other awards released
(795,156
)
 
 
 
 
Restricted stock units and other awards cancelled
(269,743
)
 
 
 
 
Balance at December 28, 2019
5,404,172

 
2.8
 
$
332,572,745

Outstanding and expected to vest, December 28, 2019
4,513,314

 
2.8
 
$
277,749,319

(1)
Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company’s common stock on December 27, 2019, the last business day preceding the fiscal quarter-end, multiplied by the number of RSUs outstanding or expected to vest as of December 28, 2019.

The Company withheld shares totaling $7.6 million and $17.6 million in value as a result of employee withholding taxes based on the value of RSUs on their vesting date for the three and six months ended December 28, 2019. Total payments for employees’ tax obligations to taxing authorities are reflected as financing activities within the Condensed Consolidated Statements of Cash Flows.

As of December 28, 2019, there was $175.2 million of unrecognized compensation expense related to 5.4 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 and after, 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 after August 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 $54.70 and $75.48 per share for the six months ended December 28, 2019 and December 29, 2018, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of December 28, 2019 and their activity during the six months ended December 28, 2019:
 
Number of
Shares 
 
Weighted Average
Remaining
Contractual Term
(in Years) 
 
Aggregate Intrinsic
Value(1) 
Balance at June 29, 2019
1,048,532

 
 
 
 
Market stock units granted
259,984

 
 
 
 
Market stock units released
(183,974
)
 
 
 
 
Market stock units cancelled
(140,290
)
 
 
 
 
Balance at December 28, 2019
984,252

 
2.8
 
$
60,570,868

Outstanding and expected to vest, December 28, 2019
350,417

 
2.7
 
$
21,564,655

(1)
Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on December 27, 2019, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of December 28, 2019.


As of December 28, 2019, there was $32.4 million of unrecognized compensation expense related to 1.0 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 2008 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
 
Six Months Ended
 
December 28, 2019
 
December 29, 2018
 
December 28, 2019
 
December 29, 2018
Expected holding period (in years)
0.5 years
 
0.5 years
 
0.5 years
 
0.5 years
Risk-free interest rate
1.6% - 2.7%
 
1.6% - 2.6%
 
1.6% - 2.7%
 
1.6% - 2.6%
Expected stock price volatility
28.4% - 31.3%
 
19.6% - 32.7%
 
28.4% - 31.3%
 
19.6% - 32.7%
Dividend yield
3.1% - 3.4%
 
2.1% - 3.1%
 
3.1% - 3.4%
 
2.1% - 3.1%


As of December 28, 2019 and December 29, 2018, there was $10.1 million and $8.6 million, respectively, of unrecognized compensation expense related to the 2008 ESPP.