Share-Based Compensation

6 Months Ended

Jul. 03, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

9. Share-Based Compensation

     Share-Based Plans. The Company has a share-based compensation program that provides its Board of Directors with broad discretion in creating equity incentives for employees, officers, non-employee board members and non-employee service providers. This program includes incentive and non-statutory stock option awards, stock appreciation right awards, restricted stock awards, performance-based cash bonus awards for Section 16 executive officers and an automatic grant program for non-employee board members pursuant to which such individuals will receive option grants or other stock awards at designated intervals over their period of board service. These awards are granted under various plans, all of which are stockholder approved. Stock option awards generally vest as follows: 25% of the shares vest on the first anniversary of the vesting commencement date and the remaining 75% vest proportionately each quarter over the next 12 quarters of continued service. Restricted stock awards generally vest in equal annual installments over a 4-year period. Initial grants to non-employee board members under the automatic grant program vest over a 4-year period and subsequent grants to non-employee board members vest over a 1-year period in accordance with the specific vesting provisions set forth in that program. Additionally, the Company has an Employee Stock Purchase Plan (“ESPP”) that allows employees to purchase shares of common stock at 85% of the fair market value at the subscription date or the date of purchase, whichever is lower.

     Pliant Technology, Inc. 2007 Stock Plan. The Pliant 2007 Stock Plan was assumed pursuant to the Company’s acquisition of Pliant on May 24, 2011, and no further grants were made under this plan after that date. Unvested stock options that were outstanding under this plan on May 24, 2011 were assumed by the Company and will continue to be governed by the existing terms of the plan and may be exercised for shares of the Company’s common stock at any time prior to the expiration of the ten-year option term or any earlier termination of those options in connection with the optionee’s termination of service with the Company. Stock options granted under this plan generally vest as follows: 25% of the shares vest on the first anniversary of the vesting commencement date and the remaining 75% vest proportionately each month over the next 36 months of continued service. See Note 14, “Business Acquisition.”

     Valuation Assumptions. The fair value of the Company’s stock options granted to employees, officers and non-employee board members and ESPP shares issued to employees, excluding unvested stock options assumed through the acquisition of Pliant, for the three and six months ended July 3, 2011 and July 4, 2010 was estimated using the following weighted average assumptions.

	Three months ended						Six months ended
	July 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010
Option Plan Shares
Dividend yield	None			None			None			None
Expected volatility		0.43			0.49			0.43			0.50
Risk free interest rate		1.33	%		1.84	%		1.68	%		1.59	%
Expected lives	4.3 years			4.3 years			4.3 years			3.8 years
Estimated annual forfeiture rate		8.57	%		7.32	%		8.57	%		7.32	%
Weighted average fair value at grant date	$	16.11		$	17.01		$	17.75		$	11.90
Employee Stock Purchase Plan Shares
Dividend yield	None			None			None			None
Expected volatility		0.43			0.59			0.43			0.59
Risk free interest rate		0.17	%		0.18	%		0.17	%		0.18	%
Expected lives	1/2 year			1/2 year			1/2 year			1/2 year
Weighted average fair value at purchase date	$	13.79		$	8.58		$	13.79		$	8.58

Share-Based Compensation Plan Activities

     Stock Options and SARs. A summary of stock option and stock appreciation rights (“SARs”) activity under all of the Company’s share-based compensation plans as of July 3, 2011 and changes during the six months ended July 3, 2011, is presented below.

						Weighted
						Average
				Weighted		Remaining
				Average		Contractual		Aggregate
	Shares			Exercise Price		Term (Years)		Intrinsic Value
	(In thousands, except exercise price and contractual term)
Options and SARs outstanding at January 2, 2011		20,393		$	32.18		3.8	$	393,996
Granted		2,512			45.32
Exercised		(2,274	)		25.10				53,966
Forfeited		(276	)		25.31
Expired		(218	)		50.14
Options assumed through acquisition		209			4.35
Options and SARs outstanding at July 3, 2011		20,346			34.63		3.8		244,405
Options and SARs vested and expected to vest after July 3, 2011, net of forfeitures		18,881			35.05		3.7		221,588
Options and SARs exercisable at July 3, 2011		13,357			36.48		2.8		146,726

     At July 3, 2011, the total compensation cost related to options granted to employees under the Company’s share-based compensation plans but not yet recognized was approximately $70.6 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average period of approximately 2.6 years.

     Restricted Stock Units. Restricted stock units (“RSUs”) are settled in shares of the Company’s common stock upon vesting on a one-for-one basis. Typically, vesting of RSUs is subject to the employee’s continuing service to the Company. The cost of these awards is determined using the fair value of the Company’s common stock on the date of grant, and compensation is recognized on a straight-line basis over the requisite vesting period.

     A summary of the changes in RSUs outstanding under the Company’s share-based compensation plan during the six months ended July 3, 2011 is presented below.

				Weighted
				Average Grant		Aggregate
	Shares			Date Fair Value		Intrinsic Value
	(In thousands, except for weighted average grant date fair value)
Non-vested share units at January 2, 2011		1,244		$	28.64	$	62,007
Granted		1,306			47.57
Vested		(355	)		49.79		17,446
Forfeited		(59	)		33.67
Non-vested share units at July 3, 2011		2,136			39.99		91,441

     As of July 3, 2011, the Company had approximately $62.9 million of unrecognized compensation expense, net of estimated forfeitures, related to RSUs, which will be recognized over a weighted average estimated remaining life of 3.2 years.

     Employee Stock Purchase Plan. At July 3, 2011, there was approximately $0.8 million of total unrecognized compensation cost related to the Company’s ESPP that is expected to be recognized over a period of approximately 0.1 years.

     Share-Based Compensation Expense. The following tables set forth the detailed allocation of the share-based compensation expense for the three and six months ended July 3, 2011 and July 4, 2010, respectively.

	Three months ended						Six months ended
	July 3, 2011			July 4, 2010			July 3, 2011			July 4, 2010
	(In thousands)
Share-based compensation expense by caption:
Cost of product revenues	$	1,090		$	1,309		$	2,032		$	3,767
Research and development		7,684			6,544			14,928			13,346
Sales and marketing		2,867			3,152			5,042			5,340
General and administrative		2,717			3,972			6,947			9,394
Total share-based compensation expense		14,358			14,977			28,949			31,847
Total tax benefit recognized		(3,349	)		(5,644	)		(7,732	)		(10,422	)
Decrease in net income	$	11,009		$	9,333		$	21,217		$	21,425
Share-based compensation expense by type of award:
Stock options and SARs	$	6,966		$	9,248		$	15,648		$	20,761
RSUs		5,271			4,042			9,110			7,708
ESPP		2,121			1,687			4,191			3,378
Total share-based compensation expense		14,358			14,977			28,949			31,847
Total tax benefit recognized		(3,349	)		(5,644	)		(7,732	)		(10,422	)
Decrease in net income	$	11,009		$	9,333		$	21,217		$	21,425

     Share-based compensation expense of $1.3 million and $0.9 million related to manufacturing personnel was capitalized into inventory as of July 3, 2011 and January 2, 2011, respectively.

     The total grant date fair value of options and RSUs vested during the three and six months ended July 3, 2011 and July 4, 2010 was as follows:

	Three months ended				Six months ended
	July 3, 2011		July 4, 2010		July 3, 2011		July 4, 2010
	(In thousands)
Fair value of options vested	$	7,458	$	8,884	$	19,401	$	25,033
Fair value of RSUs vested		1,227		705		10,345		8,944
Total fair value of options and RSUs vested	$	8,685	$	9,589	$	29,746	$	33,977