11. Share-Based Compensation

During the three months ended September 30, 2017, we adopted the accounting standard update, or ASU, for Compensation-Stock Compensation which was issued by the Financial Accounting Standards Board, or FASB. This update simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. Upon adoption of this ASU, we elected to change our accounting policy to account for forfeitures as they occur and we applied the accounting policy change on a modified retrospective basis. As a result of the adoption of this ASU, we recognized the net cumulative effect of this change as a $24.7 million increase to retained earnings, a $1.0 million increase to additional paid-in capital and established an additional $25.7 million of deferred tax assets for research credit and alternative minimum tax credit carryforwards. We have reflected excess tax benefits for share-based payments in the statement of cash flows as operating activities rather than financing activities on a prospective basis and therefore prior periods have not been adjusted.

Share-based compensation and the related tax benefit recognized in our condensed consolidated statements of income were as follows (in millions):

	Three Months Ended
	September 30,
	2017		2016
Cost of revenue	$	0.7	$	0.5
Research and development		9.1		7.8
Selling, general, and administrative		6.7		6.3
Total	$	16.5	$	14.6
Income tax benefit on share-based compensation	$	4.0	$	3.7

Historically, we have issued new shares in connection with our share-based compensation plans, however, treasury shares were also available for issuance as of September 30, 2017. Any additional shares repurchased under our common stock repurchase program will be available for issuance under our share-based compensation plans.

Stock Options

Stock option activity, including stock options granted, exercised, and forfeited, weighted average exercise prices for stock options outstanding and exercisable, and the aggregate intrinsic value were as follows:

	Stock			Weighted		Aggregate
	Option			Average		Intrinsic
	Awards			Exercise		Value
	Outstanding			Price		(in millions)
Balance as of June 30, 2017		2,490,168		$	49.20
Granted		61,825			45.32
Exercised		(38,258	)		27.46
Forfeited		(29,228	)		65.10
Balance as of September 30, 2017		2,484,507			49.25	$	13.8
Exercisable at September 30, 2017		1,946,103			45.64	$	13.8

The aggregate intrinsic value was determined using the closing price of our common stock on September 29, 2017 of $39.18 and excludes the impact of stock options that were not in-the-money.

Deferred Stock Units

DSU activity, including DSUs granted, delivered, and forfeited, and the balance and aggregate intrinsic value of DSUs was as follows:

				Aggregate
	DSU			Intrinsic
	Awards			Value
	Outstanding			(in millions)
Balance as of June 30, 2017		1,320,798
Granted		316,568
Delivered		(39,607	)
Forfeited		(26,450	)
Balance as of September 30, 2017		1,571,309		$	61.6

The aggregate intrinsic value was determined using the closing price of our common stock on September 29, 2017 of $39.18.

Of the shares delivered, 9,007 shares valued at $0.5 million were withheld to meet statutory minimum tax withholding requirements.

Market Stock Units

Our Amended and Restated 2010 Incentive Compensation Plan provides for the grant of MSU awards 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 have granted MSUs to our executive officers, which are 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 based 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 using the following formula:

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

Beginning with the MSU grants in fiscal 2015, the payout for the first tranche and the second tranche will not exceed 100% and the payout for the third tranche will be calculated based on the total target quantity for the entire grant multiplied by the payout factor, based on performance for the three-year performance period, which will then be reduced by shares issued for the first tranche and the second tranche.

Delivery of shares earned, if any, will take place on the dates provided in the applicable 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 requirements and deliver a net quantity of shares to the employee, consultant, or director after such withholding. Until delivery of shares, the grantee has no rights as a stockholder with respect to any shares underlying the MSU award.

During the three months ended September 30, 2017, MSU activity, including MSUs granted, delivered, and forfeited, and the balance and aggregate intrinsic value of MSUs as of September 30, 2017, was as follows:

				Aggregate
	MSU			Intrinsic
	Awards			Value
	Outstanding			(in millions)
Balance as of June 30, 2017		158,596
Granted		-
Performance adjustment		-
Delivered		-
Forfeited		(8,733	)
Balance as of September 30, 2017		149,863		$	5.9

We value MSUs using the Monte Carlo simulation model on the date of grant and amortize the compensation expense over the three-year performance and service period on a straight-line basis. The unrecognized share-based compensation cost of our outstanding MSUs was approximately $6.7 million as of September 30, 2017, which will be recognized over a weighted average period of approximately 1.4 years.

Employee Stock Purchase Plan

There were no employee stock purchase plan purchases during the three-month period ended September 30, 2017.