Share-Based Compensation

Share-Based Compensation Expense

The following table presents the details of the Company's share-based compensation expense (amounts in millions):



	Year Ended March 31,
	2018			2017			2016
Cost of sales	$	13.8	⁽¹⁾	$	18.7	⁽¹⁾	$	8.3	⁽¹⁾
Research and development	42.5			46.8			32.0
Selling, general and administrative	36.9			62.6			31.1
Pre-tax effect of share-based compensation	93.2			128.1			71.4
Income tax benefit	28.3		⁽²⁾	44.2		⁽²⁾	23.0
Net income effect of share-based compensation	$	64.9		$	83.9		$	48.4

⁽¹⁾ During the year ended March 31, 2018, $11.9 million of share-based compensation expense was capitalized to inventory, and $13.8 million of previously capitalized share-based compensation expense in inventory was sold. During the year ended March 31, 2017, $11.3 million of share-based compensation expense was capitalized to inventory. The amount of share-based compensation included in cost of sales during fiscal 2017 included $14.5 million of previously capitalized share-based compensation expense in inventory that was sold and $4.2 million of share-based compensation expense related to the Company's acquisition of Atmel that was not previously capitalized to inventory. During the year ended March 31, 2016, $7.9 million of share-based compensation expense was capitalized to inventory, and $8.3 million of previously capitalized share-based compensation expense in inventory was sold.

⁽²⁾Amounts exclude excess tax benefits related to share-based compensation of $28.1 million and $25.0 million for the years ended March 31, 2018 and March 31, 2017, respectively. The Company elected to early adopt ASU 2016-09 effective April 1, 2016. Prior to the adoption of ASU 2016-09, the Company recognized excess tax benefits related to share-based compensation in additional paid-in capital. Refer to Note 1 for additional information on the adoption of this standard.

The amount of unearned share-based compensation currently estimated to be expensed in the remainder of fiscal 2019 through fiscal 2023 related to unvested share-based payment awards at March 31, 2018 is $169.6 million. The weighted average period over which the unearned share-based compensation is expected to be recognized is approximately 1.91 years.

Atmel Acquisition-related Equity Awards

In connection with the acquisition of Atmel, the Company assumed certain RSUs granted by Atmel. The assumed awards were measured at the acquisition date based on the estimated fair value, which was a total of $95.9 million. A portion of that fair value, $7.5 million, which represented the pre-acquisition vested service provided by employees to Atmel, was included in the total consideration transferred as part of the acquisition. As of the acquisition date, the remaining portion of the fair value of those awards was $88.4 million, representing post-acquisition share-based compensation expense that will be recognized as these employees provide service over the remaining vesting periods.

Combined Incentive Plan Information

RSU share activity under the 2004 Plan is set forth below:



	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested shares at March 31, 2015	5,268,916		$	34.15
Granted	2,479,729		38.91
Assumed upon acquisition	525,442		40.58
Forfeited	(360,072	)	38.20
Vested	(1,606,273	)	32.47
Nonvested shares at March 31, 2016	6,307,742		36.76
Granted	1,635,655		51.46
Assumed upon acquisition	2,059,524		46.57
Forfeited	(722,212	)	43.58
Vested	(2,861,253	)	38.60
Nonvested shares at March 31, 2017	6,419,456		42.06
Granted	1,267,536		77.26
Forfeited	(279,051	)	49.65
Vested	(1,735,501	)	38.00
Nonvested shares at March 31, 2018	5,672,440		$	50.79

The total intrinsic value of RSUs which vested during the years ended March 31, 2018, 2017 and 2016 was $146.0 million, $166.1 million and $72.1 million, respectively. The aggregate intrinsic value of RSUs outstanding at March 31, 2018 was $518.2 million, calculated based on the closing price of the Company's common stock of $91.36 per share on March 31, 2018. At March 31, 2018, the weighted average remaining expense recognition period was 1.96 years.

Stock option and stock appreciation right (SAR) activity under the Company's stock incentive plans in the three years ended March 31, 2018 is set forth below:



	Number of Shares		Weighted Average Exercise Price per Share
Outstanding at March 31, 2015	684,299		$	28.41
Granted	244		41.09
Assumed upon acquisition	604,900		35.03
Exercised	(221,987	)	25.30
Forfeited or expired	(153,948	)	31.52
Outstanding at March 31, 2016	913,508		33.00
Exercised	(437,906	)	34.34
Forfeited or expired	(42,485	)	34.26
Outstanding at March 31, 2017	433,117		31.51
Exercised	(131,666	)	31.75
Forfeited or expired	(17,111	)	34.73
Outstanding at March 31, 2018	284,340		$	31.21

The total intrinsic value of options and SARs exercised during the years ended March 31, 2018, 2017 and 2016 was $7.4 million, $9.6 million and $4.7 million, respectively. This intrinsic value represents the difference between the fair market value of the Company's common stock on the date of exercise and the exercise price of each equity award.

The aggregate intrinsic value of options and SARs outstanding at March 31, 2018 was $17.1 million. The aggregate intrinsic value of options and SARS exercisable at March 31, 2018 was $13.8 million. The aggregate intrinsic values were calculated based on the closing price of the Company's common stock of $91.36 per share on March 29, 2018.

As of March 31, 2018 and March 31, 2017, the number of option and SAR shares exercisable was 224,022 and 264,061, respectively, and the weighted average exercise price per share was $29.96 and $29.59, respectively.

The weighted average fair values per share of stock options granted in the year ended March 31, 2016 was $8.85. The fair values per share of stock options granted in the year ended March 31, 2016 were estimated utilizing the following assumptions:



	Year Ended March 31,
	2016
Expected term (in years)	6.5
Volatility	29.50	%
Risk-free interest rate	1.54	%
Dividend yield	3.00	%

There were no stock options granted in the years ended March 31, 2018 and March 31, 2017.