Share-based Benefit Plans

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 (“SARs”), restricted stock unit (“RSU”) 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 programs, 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. RSU awards generally vest in equal annual installments over a four-year period. Grants to non-employee board members generally vest in one installment on the earlier of (i) the first anniversary of the grant date or (ii) the day immediately preceding the next annual meeting of the Company’s stockholders following the grant date. 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.

Valuation Assumptions

Option Plan Shares. The fair value of the Company’s stock options granted to employees, officers and non-employee board members was estimated using the following weighted-average assumptions:



	Three months ended		Six months ended
	June 28, 2015	June 29, 2014	June 28, 2015	June 29, 2014
Dividend yield	1.71%	1.20% - 1.25%	1.52% - 1.71%	1.20% - 1.25%
Expected volatility	0.33	0.31	0.32	0.32
Risk-free interest rate	1.32%	1.19%	1.19%	1.22%
Expected term	4.1 years	4.2 years	4.2 years	4.4 years
Estimated annual forfeiture rate	8.20%	8.79%	8.20%	8.79%
Weighted-average fair value at grant date	$15.69	$24.07	$19.36	$18.83

RSU Plan Shares. The fair value of the Company’s RSU awards granted was valued using the closing price of the Company’s stock price on the date of grant.

Employee Stock Purchase Plan Shares. The fair value of shares issued under the Company’s ESPP program was estimated using the following weighted-average assumptions:



	Three months ended		Six months ended
	June 28, 2015	June 29, 2014	June 28, 2015	June 29, 2014
Dividend yield	1.52%	1.25%	1.52%	1.25%
Expected volatility	0.36	0.31	0.36	0.31
Risk-free interest rate	0.07%	0.08%	0.07%	0.08%
Expected term	½ year	½ year	½ year	½ year
Weighted-average fair value at purchase date	$20.20	$17.25	$20.20	$17.25

Share-based Compensation Plan Activities

Stock Options and SARs. A summary of stock option and SARs activities under all of the Company’s share-based compensation plans as of June 28, 2015 and changes during the six months ended June 28, 2015 are presented below:



	Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)				(Years)	(In thousands)
Options and SARs outstanding as of December 28, 2014	4,090			$51.94	4.5	$	202,044
Granted	985			$81.45
Exercised	(412	)		$38.54		$	15,748
Forfeited	(61	)		$58.63
Expired	(7	)		$50.91
Options and SARs outstanding as of June 28, 2015	4,595			$59.38	4.6	$	47,163
Options and SARs vested and expected to vest after June 28, 2015, net of forfeitures	4,330			$58.46	4.6	$	46,592
Options and SARs exercisable as of June 28, 2015	2,033			$47.38	3.4	$	35,497

As of June 28, 2015, the total unrecognized compensation cost related to stock options, net of estimated forfeitures, was approximately $39.1 million, and this amount is expected to be recognized over a weighted-average period of approximately 2.5 years. As of June 28, 2015, the Company had fully expensed all of its SARs awards.

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 plans during the six months ended June 28, 2015 is presented below:



	Shares		Weighted-Average Grant Date Fair Value Per Share		Aggregate Fair Market Value⁽¹⁾
	(In thousands)				(In thousands)
Non-vested share units as of December 28, 2014	5,587			$67.18
Granted	2,209			$80.84
Vested	(1,513	)		$60.29	$	122,003
Forfeited	(339	)		$76.30
Non-vested share units as of June 28, 2015	5,944			$73.46


⁽¹⁾	Aggregate Fair Market Value represents the aggregated market value of RSUs vested during the period as of their individual vest dates.

The number of vested RSUs includes shares of common stock that the Company withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. Total payments for the employees’ tax obligations to taxing authorities are reflected as a financing activity within the Condensed Consolidated Statements of Cash Flows. These net-share settlements had the same effect as share repurchases by the Company as the net share settlements reduced and retired the number of shares that would have otherwise been issued as a result of the vesting. See Note 8, “Stock Repurchases.”

As of June 28, 2015, the total unrecognized compensation cost related to RSUs, net of estimated forfeitures, was approximately $319.3 million, and this amount is expected to be recognized over a weighted-average period of approximately 2.8 years.

Employee Stock Purchase Plan. As of June 28, 2015, the total unrecognized compensation cost related to ESPP was approximately $1.5 million, and this amount is expected to be recognized over a period of one month.

Share-based Compensation Expense. The following tables set forth the detailed allocation of the share-based compensation expense:



	Three months ended						Six months ended
	June 28, 2015			June 29, 2014			June 28, 2015			June 29, 2014
	(In thousands)
Share‑based compensation expense by caption:
Cost of revenue	$	5,022		$	3,507		$	9,084		$	6,117
Research and development	22,309			17,500			43,352			33,175
Sales and marketing	9,948			7,204			19,483			13,461
General and administrative	7,143			6,238			13,913			11,726
Total share‑based compensation expense	44,422			34,449			85,832			64,479
Total tax benefit recognized	(11,401		)	(9,033		)	(22,470		)	(17,809		)
Decrease in net income	$	33,021		$	25,416		$	63,362		$	46,670

Share‑based compensation expense by type of award:
Stock options	$	6,697		$	7,971		$	14,725		$	15,895
RSUs	34,471			23,990			64,696			43,455
ESPP	3,254			2,488			6,411			5,129
Total share‑based compensation expense	44,422			34,449			85,832			64,479
Total tax benefit recognized	(11,401		)	(9,033		)	(22,470		)	(17,809		)
Decrease in net income	$	33,021		$	25,416		$	63,362		$	46,670

Share-based compensation expense of $5.4 million and $4.3 million related to manufacturing personnel was capitalized into inventory as of June 28, 2015 and December 28, 2014, respectively.

The total grant date fair value of options and RSUs vested during the period was as follows:



	Three months ended				Six months ended
	June 28, 2015		June 29, 2014		June 28, 2015		June 29, 2014
	(In thousands)
Options	$	6,386	$	7,615	$	17,173	$	17,843
RSUs	11,592		8,225		91,220		58,090
Total grant date fair value of options and RSUs vested during the period	$	17,978	$	15,840	$	108,393	$	75,933