9. Share-Based Compensation

The purpose of our various share-based compensation plans is to attract, motivate, retain, and reward high-quality employees, directors, and consultants by enabling such persons to acquire or increase their proprietary interest in our common stock in order to strengthen the mutuality of interests between such persons and our stockholders and to provide such persons with annual and long-term performance incentives to focus their best efforts on the creation of stockholder value. Consequently, we determine share-based compensatory awards issued subsequent to the initial award for our employees and consultants primarily on individual performance. Our share-based compensation plans with outstanding awards consist of our 2001 Incentive Compensation Plan, as amended, or our 2001 Plan; our Amended and Restated 2010 Incentive Compensation Plan, or our 2010 Plan; and our 2010 Employee Stock Purchase Plan, or our 2010 ESPP.

Share-based compensation awards available for grant or issuance for each plan as of the beginning of the fiscal year, including changes in the balance of awards available for grant for fiscal 2014, were as follows:


	Awards Available Under All Share-Based Award Plans			2001 Incentive Compensation Plan			2010 Incentive Compensation Plan			2010 Employee Stock Purchase Plan
Balance at June 2013		1,674,601			—			1,341,788			332,813
Additional shares authorized		3,332,898			—			3,000,000			332,898
Stock options granted		(554,108	)		—			(554,108	)		—
Deferred stock units granted		(647,927	)		—			(647,927	)		—
Market stock units granted		(80,730	)		—			(80,730	)		—
Market stock units performance adjustment		(10,782	)		—			(10,782	)		—
Purchases under employee stock purchase plan		(409,084	)		—			—			(409,084	)
Forfeited		227,026			37,567			189,459			—
Plan shares expired		(37,567	)		(37,567	)		—			—

Balance at June 2014		3,494,327			—			3,237,700			256,627

Our 2001 Plan, which expired in March 2011, was replaced by our 2010 Plan. Option awards and DSUs that are currently outstanding under our 2001 Plan will remain outstanding until exercised, delivered, forfeited, or cancelled under the terms of their respective grant agreements.

Share-based compensation and the related tax benefit recognized in our consolidated statements of income for fiscal 2014, 2013, and 2012 were as follows (in thousands):


	2014		2013		2012
Cost of revenue	$	1,142	$	911	$	1,129
Research and development		18,455		15,775		15,509
Selling, general, and administrative		13,264		15,524		17,523

Total	$	32,861	$	32,210	$	34,161

Income tax benefit on share-based compensation	$	10,563	$	9,202	$	9,589

We recognize a tax benefit upon expensing certain share-based awards associated with our share-based compensation plans, including nonqualified stock options, DSUs, and MSUs, but we cannot recognize tax benefit concurrent with the recognition of share-based compensation expenses associated with incentive stock options and employee stock purchase plan shares (qualified stock awards). For qualified stock awards we recognize a tax benefit only in the period when disqualifying dispositions of the underlying stock occur, which historically has been up to several years after vesting and in a period when our stock price substantially increases.

We determine excess tax benefit using the long-haul method in which we compare the actual tax benefit associated with the tax deduction from share-based award activity to the hypothetical tax benefit based on the grant date fair values of the corresponding share-based awards. Tax benefit associated with excess tax deduction creditable to additional paid-in capital is not recognized until the deduction reduces taxes payable.

Historically, we have issued new shares in connection with our share-based compensation plans; however, treasury shares were also available for issuance as of the end of fiscal 2014. Any additional shares repurchased under our common stock repurchase program would be available for issuance under our share-based compensation plans.

Stock Options

Our share-based compensation plans with outstanding stock option awards include our 2001 Plan and our 2010 Plan. Under our 2010 Plan, we may grant incentive stock options or nonqualified stock options to purchase shares of our common stock at not less than 100% of the fair market value, or FMV, on the date of grant. Stock options granted to our employees generally are incentive stock options, or qualified options, under the Internal Revenue Code, subject to calendar year vesting limitations with any balance being nonqualified stock options, while consultants and directors receive nonqualified stock options.

Options granted under our 2010 Plan generally vest over three to four years from the vesting commencement date and expire seven years after the date of grant if not exercised.

Certain stock option activity for fiscal 2014 and balances as of the end of fiscal 2014 were as follows:


	Stock Option Awards Outstanding			Weighted Average Exercise Price		Intrinsic Value (In thousands)
Balance at June 2013		6,030,287		$	26.15
Granted		554,108			52.64
Exercised		(2,757,509	)		26.01
Forfeited		(133,511	)		30.46

Balance at June 2014		3,693,375			30.08	$	219,037

Exercisable at June 2014		2,598,694			25.89	$	164,987

The aggregate intrinsic value was determined using the closing price of our common stock on the last trading day of fiscal 2014, or June 27, 2014, of $89.38 and excludes the impact of options that were not in-the-money. Approximately 70% of the stock option awards outstanding were vested and in-the-money as of the end of fiscal 2014.

At the end of fiscal 2014, we estimated that we have 3.6 million fully vested options and options expected to vest with an aggregate intrinsic value of $215.7 million, having a weighted average exercise price of $29.77 and a weighted average remaining contractual term of 4.5 years. The weighted average remaining contractual term for the options exercisable is approximately 4.1 years.

Cash received and the aggregate intrinsic value of stock options exercised for fiscal 2014, 2013, and 2012 were as follows (in thousands):


	2014		2013		2012
Cash received	$	71,721	$	30,766	$	28,939
Aggregate intrinsic value	$	79,277	$	23,559	$	16,878

The fair value of each award granted under our share-based compensation plans for fiscal 2014, 2013, and 2012 was estimated at the date of grant using the Black-Scholes option pricing model, assuming no expected dividends and the following range of assumptions:


	2014	2013	2012
Expected volatility	40.1% - 44.5%	41.8% - 48.9%	44.6% - 47.6%
Expected life in years	3.8 - 4.3	3.5 - 4.6	4.6
Risk-free interest rate	1.31% - 1.74%	0.62% -0.72%	0.7% - 1.3%
Fair value per award	$18.72	$11.40	$10.70

The unrecognized share-based compensation costs for stock options granted under our various plans were approximately $16.9 million as of the end of fiscal 2014 to be recognized over a weighted average period of approximately 1.8 years.

Deferred Stock Units

Our 2001 Plan, which expired in March 2011, provided for the grant of DSU awards to our employees, consultants, and directors. Currently, our 2010 Plan provides for the grant of DSU awards to our employees, consultants, and directors. A DSU is a promise to deliver shares of our common stock at a future date in accordance with the terms of the DSU grant agreement. We began granting DSUs in January 2006.

DSUs granted under our 2010 Plan generally vest ratably over three to four years from the vesting commencement date. Delivery of shares under the plan takes place on the quarterly vesting dates. At the delivery date, we withhold shares to cover statutory minimum tax withholding by delivering a net quantity of shares. Until delivery of shares, the grantee has no rights as a stockholder.

An election to defer delivery of the underlying shares for unvested DSUs can be made by the grantee provided the deferral election is made at least one year before vesting and the deferral period is at least five years from the scheduled delivery date.

DSU activity, including DSUs granted, delivered, and forfeited in fiscal 2014, and the balance and aggregate intrinsic value of DSUs as of the end of fiscal 2014 were as follows:


	DSU Awards Outstanding			Aggregate Intrinsic Value (in thousands)		Weighted Average Grant Date Fair Value
Balance at June 30, 2013		1,005,435				$	29.24
Granted		647,927					52.83
Delivered		(506,937	)				30.48
Forfeited		(88,182	)				34.80

Balance at June 30, 2014		1,058,243		$	94,586		42.62

Of the shares delivered, 157,489 shares valued at $8.2 million were withheld to meet statutory minimum tax withholding requirements. The aggregate intrinsic value was determined using the closing price of our common stock on the last trading day of fiscal 2014, or June 27, 2014, of $89.38.

The unrecognized share-based compensation cost for DSUs granted under our 2001 Plan and our 2010 Plan was approximately $43.7 million as of the end of fiscal 2014, which will be recognized over a weighted average period of approximately 2.0 years. The aggregate market value of DSUs delivered in fiscal 2014, 2013, and 2012 was $26.3 million, $14.7 million, and $13.3 million, respectively.

Market Stock Units

Our 2010 Plan provides for the grant of MSU awards, which are a type of DSU award, to our employees, consultants, and directors. An MSU is a promise to deliver shares of our common stock at a future date based on the achievement of market-based performance requirements in accordance with the terms of the MSU grant agreement. We began granting MSUs in November 2012.

We have granted MSUs to our executive officers, which were designed to vest in three tranches with the target quantity for each tranche equal to one-third of the total MSU grant. The first tranche vests based on a one-year performance period; the second tranche vests based on a two-year performance period; and the third tranche vests based on a three-year performance period. Performance is measured on the achievement of a specified level of total stockholder return, or TSR, relative to the TSR of the Philadelphia Semiconductor Index, or SOX Index. The potential payout ranges from 0% to 200% of the grant target quantity and is adjusted on a two-to-one ratio based on our TSR performance relative to the SOX Index TSR performance using the following formula:

(100% + ([Synaptics TSR - SOX Index TSR] x 2))

Delivery of shares earned, if any, will take place on the dates provided in the MSU grant agreement, assuming the grantee is still an employee, consultant, or director of our company at the end of the applicable performance period. On the delivery date, we withhold shares to cover statutory minimum tax withholding by delivering a net quantity of shares. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the MSU award.

MSU activity, including MSUs granted, delivered, and forfeited in fiscal 2014, and the balance and aggregate intrinsic value of MSUs as of the end of fiscal 2014 were as follows:


				Aggregate		Weighted
				Intrinsic		Average
	MSU Awards			Value		Grant Date
	Outstanding			(in thousands)		Fair Value
Balance at June 30, 2013		67,400				$	25.82
Granted		80,730					60.62
Performance adjustment		10,782					—
Delivered		(33,249	)				25.82
Forfeited		(5,333	)				25.82

Balance at June 30, 2014		120,330		$	10,755		49.17

As a result of the Synaptics TSR exceeding the SOX Index TSR by 24 percentage points, we delivered 148% of the targeted shares underlying the November 2012 MSU grants, or 10,782 additional shares. Of the shares delivered, 15,148 shares valued at $670,000 were withheld to meet statutory minimum tax withholding requirements. The aggregate intrinsic value assumes a 100% payout factor and was determined using the closing price of our common stock on the last trading day of fiscal 2014, or June 27, 2014, of $89.38.

The fair value of each MSU granted from our plans for fiscal 2014 and 2013 was estimated at the date of grant using the Monte Carlo simulation model, assuming no expected dividends and the following assumptions:


	2014			2013
Expected volatility of company		38.79	%		36.63	%
Expected volatility of SOX index		24.95	%		28.57	%
Correlation coefficient		0.53			0.58
Expected life in years		2.92			2.87
Risk-free interest rate		0.57	%		0.31	%
Fair value per award	$	60.62		$	25.82

We amortize the compensation expense over the three-year performance and service period. The unrecognized share-based compensation cost of our outstanding MSUs was approximately $4.5 million as of the end of fiscal 2014, which will be recognized over a weighted average period of approximately 1.1 years.

Employee Stock Purchase Plan

Our 2010 ESPP became effective on January 1, 2011. The 2010 ESPP allows employees to designate up to 15% of their base compensation, subject to legal restrictions and limitations, to purchase shares of common stock at 85% of the lesser of the FMV at the beginning of the offering period or the exercise date. The offering period extends for up to two years and includes four exercise dates occurring at six-month intervals. Under the terms of our 2010 ESPP, if the FMV at an exercise date is less than the FMV at the beginning of the offering period, the current offering period will terminate and a new two-year offering period will commence.

Shares purchased, weighted average purchase price, cash received, and the aggregate intrinsic value for employee stock purchase plan purchases in fiscal 2014, 2013, and 2012 were as follows (in thousands, except shares purchased and weighted average purchase price):


	2014		2013		2012
Shares purchased		409,084		327,465		242,225
Weighted average purchase price	$	22.07	$	20.36	$	24.51
Cash received	$	9,026	$	6,668	$	5,937
Aggregate intrinsic value	$	12,815	$	4,845	$	1,534

In accordance with accounting standards related to the accounting for employee stock purchase plans with a look-back option, the early termination of an offering period followed by the commencement of a new offering period represents a modification to the terms of the related awards. Under the terms of our 2010 ESPP, the offering period that commenced on May 16, 2012 was terminated on November 15, 2012 and a new offering period commenced on November 16, 2012. The November 16, 2012 modification affected approximately 474 employees and resulted in incremental compensation costs that were not material and is being recognized on a straight-line basis over the two-year period ending November 15, 2014.

Under the terms of our 2010 ESPP, the offering period that commenced on May 16, 2011 was terminated on May 15, 2012 and a new offering period commenced on May 16, 2012. The May 16, 2012 modification affected approximately 491 employees and resulted in incremental compensation costs that were not material and that were recognized on a straight-line basis over the two-year period ended May 15, 2014.

The fair value of each award granted under our 2010 ESPP for fiscal 2014, 2013, and 2012 was estimated using the Black-Scholes option pricing model, assuming no expected dividends and the following range of assumptions:


	2014	2013	2012
Expected volatility	43.8% - 49.3%	38.6% - 40.2%	34.0% - 37.3%
Expected life in years	0.5 - 1.0	0.5 - 2.0	0.5 - 2.0
Risk-free interest rate	0.05% - 0.13%	0.12% - 0.24%	0.1% - 0.3%
Fair value per award	$15.04	$8.31	$8.93

The expected volatility is based on either implied volatility for the expected lives of 0.5 years or a weighting of implied and historical volatility for expected lives greater than 0.5 years; the expected life is based on each period that begins with the enrollment date until each purchase date remaining in the offering period at the date of enrollment in the plan; and the risk free interest rate is based on U.S. Treasury yields or yield curve in effect for each expected life.

Unrecognized share-based compensation costs for awards granted under our 2010 ESPP at the end of fiscal 2014 were approximately $1.9 million that will be amortized over the next 4 months.