Note 2 — Stock-Based Compensation

On May 9, 2013, the 2003 Equity Incentive Plan was amended to increase the number of shares available for new awards to 20 million, of which 15 million were available for restricted stock and/or restricted stock units (“RSUs”). In addition, the period during which incentive stock options can be granted was extended to February 5, 2023, and the value of awards that can be granted in any fiscal year to a non-employee director was limited to $0.5 million.

On May 15, 2013, the Employee Stock Purchase Plan (“ESPP”) was amended to increase the number of shares available for issuance under the plan to 30 million and to extend the term of the ESPP through May 14, 2023.

Stock-based compensation expense, net of estimated forfeitures, related to the Company’s stock options, ESPP and RSUs by expense category was as follows:


	Three Months Ended				Six Months Ended
	June 30, 2013		July 1, 2012		June 30, 2013		July 1, 2012
	(In thousands)
Cost of revenues	$	2,237	$	3,003	$	5,112	$	6,515
Research and development		9,619		11,973		22,028		24,281
Selling, general and administrative		10,009		10,342		20,271		25,356

Total stock-based compensation expense	$	21,865	$	25,318	$	47,411	$	56,152

The income tax benefit that the Company realized for the tax deduction from option exercises and other awards was not material for any period presented.

Stock Options

The fair value of each option grant is estimated as of the date of grant using a reduced-form calibrated binomial lattice model (“lattice model”). The following table summarizes the weighted-average assumptions that the Company applied in the lattice model:


	Three Months Ended						Six Months Ended
	June 30, 2013			July 1, 2012			June 30, 2013			July 1, 2012
Estimated grant date fair value per share	$	2.29		$	2.64		$	2.33		$	2.86
Expected life (years)		4.47			4.52			4.38			4.46
Risk-free interest rate		1	%		1	%		1	%		1	%
Volatility		47	%		49	%		49	%		47	%

The following table summarizes changes in stock options outstanding:


	Number of Shares			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
	(In thousands)					(In years)		(In thousands)
Options outstanding at December 31, 2012		56,042		$	5.75
Granted		6,331		$	6.89
Exercised		(4,511	)	$	3.16
Canceled		(1,808	)	$	7.90

Options outstanding at June 30, 2013		56,054		$	6.01		3.57	$	86,943

Options exercisable at June 30, 2013		38,018		$	5.88		2.48	$	66,893

As of June 30, 2013, the total unrecognized compensation expense related to unvested stock options, net of estimated forfeitures, was $36.8 million and is expected to be recognized over the next 2.5 years on a weighted-average basis.

Restricted Stock Units

The cost of service-based and performance-based RSUs is determined using the fair value of the Company’s common stock on the date of grant. For performance-based RSU expense, the Company also considers the probability that those RSUs will vest.

Service-based:

The vesting of service-based RSUs requires that the employees remain employed by the Company for a specified period of time.

The following table summarizes changes in service-based RSUs outstanding:


	Number of Units			Weighted-Average Grant Date Fair Value per Share
	(In thousands)
Unvested service-based RSUs outstanding at December 31, 2012		17,655		$	6.99
Granted		7,950		$	6.92
Vested		(4,747	)	$	6.84
Forfeited		(673	)	$	6.81

Unvested service-based RSUs outstanding at June 30, 2013		20,185		$	7.01

As of June 30, 2013, the total unrecognized compensation expense related to service-based RSUs, net of estimated forfeitures, was $115.7 million and will be recognized over the next 2.8 years on a weighted-average basis.

Performance-based:

The vesting of performance-based RSUs is contingent upon the Company meeting specified performance criteria and requires that the employees remain employed by the Company for a specified period of time.

The following table summarizes changes in performance-based RSUs outstanding:


	Number of Units			Weighted-Average Grant Date Fair Value per Share
	(In thousands)
Unvested performance-based RSUs outstanding at December 31, 2012		5,634		$	7.29
Granted		1,441		$	6.89
Vested		(3,167	)	$	7.41
Forfeited		(330	)	$	6.40

Unvested performance-based RSUs outstanding at June 30, 2013		3,578		$	7.11

As of June 30, 2013, the total unrecognized compensation expense related to performance-based RSUs, net of estimated forfeitures, was $15.1 million and, if the performance conditions are fully met, will be recognized over the next 1.8 years.

Employee Stock Purchase Plan

Compensation expense for the ESPP is calculated using the fair value of the employees’ purchase rights computed under the Black-Scholes model. Under the ESPP, rights to purchase shares are granted during the second and fourth quarters of each year. The Company issued 3.2 million and 2.8 million shares of common stock under the ESPP during the three months ended June 30, 2013 and July 1, 2012, respectively. The following table summarizes the weighted-average assumptions that the Company applied in the calculation of the fair value for the May 2013 and May 2012 grants:


	Three Months Ended
	June 30, 2013			July 1, 2012
Estimated grant date fair value per share	$	1.88		$	2.19
Expected life (years)		0.8			0.8
Risk-free interest rate		0.11	%		0.17	%
Volatility		34	%		41	%