Stock-Based Compensation

12 Months Ended

Jun. 27, 2020

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

At June 27, 2020, 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 from September 2017 to July 2020 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 in September 2017, September 2018, and September 2019 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 Consolidated Statements of Income for fiscal years 2020, 2019 and 2018:



	For the year ended June 27, 2020
	Stock Options		Restricted Stock Units and Other Awards		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	31	$	9,295	$	2,851	$	12,177
Research and development	14		38,452		6,236		44,702
Selling, general and administrative	254		34,877		3,421		38,552
Pre-tax stock-based compensation expense	$	299	$	82,624	$	12,508	$	95,431
Less: income tax effect							9,415
Net stock-based compensation expense							$	86,016



	For the year ended June 29, 2019
	Stock Options		Restricted Stock Units and Other Awards		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	35	$	7,728	$	2,324	$	10,087
Research and development	9		36,182		5,433		41,624
Selling, general and administrative	232		32,078		2,956		35,266
Pre-tax stock-based compensation expense	$	276	$	75,988	$	10,713	$	86,977
Less: income tax effect							8,443
Net stock-based compensation expense							$	78,534



	For the year ended June 30, 2018
	Stock Options		Restricted Stock Units and Other Awards		Employee Stock Purchase Plan		Total
	(in thousands)
Cost of goods sold	$	212	$	8,131	$	2,098	$	10,441
Research and development	518		32,088		4,442		37,048
Selling, general and administrative	700		28,162		2,334		31,196
Pre-tax stock-based compensation expense	$	1,430	$	68,381	$	8,874	$	78,685
Less: income tax effect							9,342
Net stock-based compensation expense							$	69,343

The expenses included in the Consolidated Statements of Income related to Restricted Stock Units and Other Awards include expenses related to MSUs of $12.7 million, $11.1 million and $7.8 million for fiscal years 2020, 2019 and 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.

The Company did not grant any stock options in fiscal years 2020, 2019 or 2018.

The following table summarizes outstanding, exercisable and vested and expected to vest stock options as of June 27, 2020 and their activity during fiscal years 2020, 2019 and 2018:



	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, June 24, 2017	2,800,007		$	26.92
Options Granted	—		—
Options Exercised	(1,090,163	)	25.69
Options Cancelled	(21,591	)	26.47
Balance, June 30, 2018	1,688,253		27.72
Options Granted	—		—
Options Exercised	(907,401	)	27.22
Options Cancelled	(3,439	)	28.08
Balance, June 29, 2019	777,413		28.30
Options Granted	—		—
Options Exercised	(656,391	)	28.26
Options Cancelled	(16,575	)	27.30
Balance, June 27, 2020	104,447		$	28.76	0.4	$	3,179,074
Exercisable as of June 27, 2020	104,447		$	28.76	0.4	$	3,179,074
Vested and expected to vest, June 27, 2020	104,447		$	28.76	0.4	$	3,179,074


(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 26, 2020, 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 27, 2020.

The total intrinsic value of options exercised during fiscal years 2020, 2019 and 2018 were $20.1 million, $27.5 million and $30.7 million, respectively.

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 $49.57, $53.97 and $44.95 per share for fiscal years 2020, 2019 and 2018, respectively.

The following table summarizes outstanding and expected to vest RSUs and other awards as of June 27, 2020 and their activity during fiscal years 2020, 2019 and 2018:



	Number of Shares		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value⁽¹⁾
Balance, June 24, 2017	5,942,123
Restricted stock units and other awards granted	1,989,959
Restricted stock units and other awards released	(1,794,029	)
Restricted stock units and other awards cancelled	(613,621	)
Balance, June 30, 2018	5,524,432
Restricted stock units and other awards granted	1,694,294
Restricted stock units and other awards released	(1,779,317	)
Restricted stock units and other awards cancelled	(521,103	)
Balance, June 29, 2019	4,918,306
Restricted stock units and other awards granted	1,834,828
Restricted stock units and other awards released	(1,700,518	)
Restricted stock units and other awards cancelled	(446,024	)
Balance, June 27, 2020	4,606,592		2.6	$	272,710,246
Expected to vest as of June 27, 2020	3,918,834		2.5	$	231,994,987


(1)	Aggregate intrinsic value for RSUs and other awards represents the closing price per share of the Company's common stock on June 26, 2020, 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 27, 2020.

The Company withheld shares totaling $35.9 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 27, 2020. 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 27, 2020, there was $148.8 million of unrecognized compensation cost related to 4.6 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 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, September 2018, and September 2019, 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 in September 2017, September 2018, and September 2019 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. Pursuant to the terms of the ADI Merger Agreement, the Company will grant RSUs in lieu of MSUs (or restricted stock awards (“RSAs”) in lieu of MSUs for any potential “disqualified individuals” within the meaning of Section 280G of the Internal Revenue Code, which RSAs will not be eligible for dividends or dividend equivalent rights) from the date of the ADI Merger Agreement through the date that the transaction closes.

The weighted-average fair value of MSUs granted was $54.70, $75.48 and $51.03 per share for fiscal years 2020, 2019 and 2018, respectively.

The following table summarizes the number of MSUs outstanding and expected to vest as of June 27, 2020 and their activity during fiscal years 2020, 2019 and 2018:



	Number of Shares		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value ⁽¹⁾
Balance, June 24, 2017	818,028
Market stock units granted	292,336
Market stock units released	—
Market stock units cancelled	(31,300	)
Balance, June 30, 2018	1,079,064
Market stock units granted	247,804
Market stock units released	(13,594	)
Market stock units cancelled	(264,742	)
Balance, June 29, 2019	1,048,532
Market stock units granted	259,984
Market stock units released	(183,974	)
Market stock units cancelled	(153,322	)
Balance, June 27, 2020	971,220		2.6	$	57,496,224
Expected to vest as of June 27, 2020	383,568		2.5	$	22,707,207


(1)	Aggregate intrinsic value for MSUs represents the closing price per share of the Company’s common stock on June 26, 2020, the last business day preceding the fiscal quarter-end, multiplied by the number of MSUs outstanding or expected to vest as of June 27, 2020.

As of June 27, 2020, there was $29.0 million of unrecognized compensation cost related to 1.0 million unvested MSUs, which is expected to be recognized over a weighted average period of approximately 2.6 years.

At June 27, 2020, the Company had 16.8 million shares of its common stock available for issuance to employees and other recipients under the 1996 Plan.

Employee Stock Purchase Plan

Employees are granted rights to acquire common stock under the 2008 ESPP.

The Company issued 0.9 million shares of its common stock for total consideration of $42.3 million related to the 2008 ESPP during the fiscal year ended June 27, 2020. As of June 27, 2020, the Company had 5.4 million shares of its common stock reserved and available for future issuance under the 2008 ESPP.

The fair value of shares granted to employees under the 2008 ESPP in fiscal years 2020, 2019 and 2018 has been estimated at the date of grant using the Black-Scholes option valuation model using the following assumptions for the offering periods outstanding:



	For the Year Ended
	June 27, 2020	June 29, 2019	June 30, 2018
Expected holding period (in years)	0.5	0.5	0.5
Risk-free interest rate	0.2% - 2.7%	1.6% - 2.6%	0.8% - 2.1%
Expected stock price volatility	28.4% - 55.2%	19.6% - 32.7%	19.1% - 32.7%
Dividend yield	3.1% - 3.4%	2.8% - 3.4%	2.8% - 3.4%

As of June 27, 2020, there was $8.8 million of unrecognized compensation expense related to the 2008 ESPP. At the end of the current offering period in November 2020, the Company will suspend the 2008 ESPP program pursuant to the terms of the ADI Merger Agreement.