Note 13—Stock-based Compensation

All stock-based payments to employees, including grants of employee stock options, are recognized in the statement of operations based on their fair values at the date of grant.

We grant equity awards under the Fairchild Semiconductor 2007 Stock Plan. We also maintain the 2000 Executive Stock Option Plan and the Fairchild Semiconductor Stock Plan. The Fairchild Semiconductor 2007 Stock Plan replaced the Fairchild Semiconductor Stock Plan when our stockholders approved the new plan on May 2, 2007. On that date the shares that remained available for grant under the Fairchild Semiconductor Stock Plan were assumed by the new plan and no further awards were granted under the Fairchild Semiconductor Stock Plan after that date. In addition, we have occasionally granted equity awards outside our equity compensation plans when necessary.

Fairchild Semiconductor 2007 Stock Plan. Under this plan, officers, employees, non-employee directors, and certain consultants may be granted stock options, stock appreciation rights, restricted stock including RSUs, PUs, DSUs, and other stock-based awards. The plan has been approved by stockholders. The maximum number of shares of common stock that may be delivered under the plan is equal to 22,639,619 shares, plus shares available for issuance as of May 2, 2007, under the Fairchild Semiconductor Stock Plan and shares subject to outstanding awards under the Fairchild Semiconductor Stock Plan as of May 2, 2007, that cease for any reason to be subject to such awards. The maximum life of any option is ten years from the date of grant for incentive stock options and non-qualified stock options. Actual terms for outstanding non-qualified stock options are eight years, although options may be granted under the plan with up to ten year terms. Options granted under the plan are exercisable at the determination of the compensation committee, generally vesting ratably over four years. PUs are contingently granted depending on the achievement of certain predetermined performance goals. DSUs, RSUs and PUs entitle participants to receive one share of common stock for each DSU, RSU or PU awarded. For RSUs and PUs, the settlement date is the vesting date. For DSUs, the settlement date is selected by the participant at the time of the grant. Grants of PUs generally vest under the plan over a period of three years, and DSUs and RSUs generally vest over a period of three or four years.

Fairchild Semiconductor Stock Plan. The Fairchild Semiconductor Stock Plan authorizes shares of common stock to be issued upon the exercise of equity awards granted under the plan. The plan has been approved by stockholders. The plan was frozen when the Fairchild Semiconductor 2007 Stock Plan was approved on May 2, 2007, and awards are no longer granted under this plan. Under this plan, executives, key employees, non-employee directors and certain consultants were granted non-qualified stock options and RSUs, PUs, and DSUs. Options generally vest over four years with maximum terms ranging from eight to ten years. DSUs, RSUs and PUs entitle participants to receive one share of common stock for each DSU, RSU or PU awarded. For RSUs and PUs, the settlement date is the vesting date. For DSUs, the settlement date is selected by the participant at the time of the grant. Grants of PUs generally vest under the plan over a period of three years, and DSUs and RSUs generally vest over a period of three or four years.

The 2000 Executive Stock Option Plan. The 2000 Executive Stock Option Plan authorizes up to 1,671,669 shares of common stock to be issued upon the exercise of options under the plan. The plan has been approved by stockholders. Individuals receiving options under the plan may not receive in any one year options to purchase more than 1,500,000 shares of common stock. Options generally vest over four years with a maximum term of ten years.

The following table presents a summary of our stock options:


	Year Ended
	December 28, 2014
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(000’s)					(In years)		(In millions)
Outstanding at beginning of period		1,088		$	15.32
Granted		—			—
Exercised		(247	)		11.63
Expired		(393	)		18.11

Outstanding at end of period		448		$	14.91		1.5	$	1.2

Exercisable at end of period		398		$	15.01		0.9	$	1.1

The weighted average grant date fair value for stock options granted during the years ended December 29, 2013 and December 30, 2012 was $6.33 and $6.25, respectively. Total intrinsic value for stock options exercised (i.e. the difference between the market price at exercise and the price paid by employees to exercise the award) for 2014, 2013 and 2012, is $1.2 million, $0.3 million and $0.8 million, respectively.

The following table presents a summary of our DSUs for the year ended December 28, 2014:


	Year Ended
	December 28, 2014
	Shares			Weighted Average Grant Date Fair Value
	(000’s)
Outstanding at beginning of period		396		$	13.55
Granted		80			12.90
Vested and released		(99	)		9.41
Forfeited		—			—

Outstanding at end of period		377		$	14.50

The weighted average grant date fair value for DSUs granted during the years ended December 29, 2013 and December 30, 2012 was $13.98 and $14.30, respectively. The total grant date fair value for DSUs vested during the years ended December 28, 2014, December 29, 2013, and December 30, 2012 was $0.9 million, $0.6 million and $0.6 million, respectively. The number, and weighted average remaining contractual term for DSUs vested and outstanding is 215,721 units and 1.57 years, respectively as of December 28, 2014.

Our plan documents governing DSUs contain contingent cash settlement provisions upon a change of control. Accordingly, we present previously recorded expense associated with unvested and unsettled DSUs under the balance sheet caption “Temporary equity-deferred stock units”.

The following table presents a summary of our RSUs for the year ended December 28, 2014:


	Year Ended
	December 28, 2014
	Shares			Weighted Average Grant Date Fair Value
	(000’s)
Unvested at beginning of period		4,704		$	14.21
Granted		2,504			14.16
Vested		(1,593	)		14.15
Forfeited		(789	)		14.15

Unvested at end of period		4,826		$	14.24

The weighted average grant date fair value for RSUs granted during the years ended December 29, 2013 and December 30, 2012 was $13.94 and $14.40, respectively. The total grant date fair value for RSUs vested during the year ended December 28, 2014, December 29, 2013, and, December 30, 2012 was $22.5 million, $19.0 million and $16.0 million, respectively.

The following table presents a summary of our PUs for the year ended December 28, 2014.


	Year Ended
	December 28, 2014
	Shares			Weighted Average Grant Date Fair Value
	(000’s)
Unvested at beginning of period		970		$	14.39
Granted		752			13.80
Vested		(365	)		15.02
Forfeited		(222	)		13.98

Unvested at end of period		1,135		$	13.88

The weighted average grant date fair value for PUs granted during the years ended December 29, 2013 and December 30, 2012 was $13.99 and $15.77, respectively. The total grant date fair value for PUs vested during the year ended December 28, 2014, December 29, 2013 and December 30, 2012 was $5.5 million, $5.0 million and $7.4 million, respectively.

Our practice is to issue shares of common stock upon exercise or settlement of options, DSUs, RSUs and PUs from previously unissued shares. For the years ended December 28, 2014, December 29, 2013, and December 30, 2012, $1.5 million, $1.1 million, and $5.0 million respectively, was received from exercises of stock options.

Valuation and Expense Information

The following table summarizes stock-based compensation expense by financial statement caption, for the years ended December 28, 2014, December 29, 2013 and December 30, 2012.


	Year Ended
	December 28, 2014		December 29, 2013		December 30, 2012
	(In millions)
Cost of Sales	$	5.3	$	4.9	$	4.5
Research and Development		8.4		7.5		5.7
Selling, General and Administrative		18.9		15.5		12.4

	$	32.6	$	27.9	$	22.6

We also capitalized $1.5 million, $1.0 million and $0.6 million of stock-based compensation into inventory for the years ended December 28, 2014, December 29, 2013 and December 30, 2012, respectively. In addition, due to our valuation allowance for U.S. deferred income tax assets, no tax benefit on U.S. based stock compensation expense was recognized in the years ended December 28, 2014, December 29, 2013 and December 30, 2012. No material income tax benefit was recognized by foreign tax jurisdictions for the year ended December 28, 2014, December 29, 2013 and December 30, 2012.

The following table summarizes total compensation cost related to unvested awards not yet recognized and the weighted average period over which it is expected to be recognized as of our year end.


	As of December 28, 2014
	Unrecognized Compensation Cost for Unvested Awards		Weighted Average Remaining Recognition Period
	(In millions)		(In years)
Options	$	0.3		2.3
DSUs		0.4		1.9
RSUs		49.9		2.7
PUs		6.5		2.0

The fair value of each DSU, RSU and PU is equal to the closing market price of our common stock on the date of grant. We did not grant any options during 2014. The fair value of each option grant for our stock plans is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions:


	Year Ended			Year Ended			Year Ended
	December 28, 2014			December 29, 2013			December 30, 2012
Expected volatility		—	%		50.1	%		50.1	%
Dividend yield		—			—			—
Risk-free interest rate		—	%		0.7	%		0.7	%
Expected life, in years		—			5.33			5.33

Expected volatility. We utilize an average of implied volatility and the most recent historical volatility commensurate with expected life.

Dividend yield. We do not pay a dividend, therefore this input is not applicable.

Risk-free interest rate. We estimate the risk-free interest rate based on zero-coupon U.S. Treasury securities for a period that is commensurate with the expected life assumption.

Expected life. We have evaluated expected life based on history and exercise patterns across our demographic population. We believe that this historical data is the best estimate of the expected life of a new option, and that generally all groups of our employees exhibit similar exercise behavior.