STOCK-BASED COMPENSATION

3 Months Ended

Jun. 30, 2011

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

(13) STOCK-BASED COMPENSATION

Valuation Assumptions

We are required to estimate the fair value of share-based payment awards on the date of grant. We recognize compensation costs for stock-based payment awards to employees based on the grant-date fair value using a straight-line approach over the service period for which such awards are expected to vest.

We determine the fair value of our share-based payment awards as follows:

• Restricted Stock Units, Restricted Stock, and Performance-Based Restricted Stock Units.  The fair value of restricted stock units, restricted stock, and performance-based restricted stock units (other than market-based restricted stock units) is determined based on the quoted market price of our common stock on the date of grant. Performance-based restricted stock units include grants made (1) to certain members of executive management primarily granted in fiscal year 2008 and (2) in connection with certain acquisitions.

• Market-Based Restricted Stock Units.  Market-based restricted stock units consist of grants of performance-based restricted stock units granted during the three months ended June 30, 2011 to certain members of executive management (referred to herein as "market-based restricted stock units"). The fair value of our market-based restricted stock units is determined using a Monte-Carlo simulation model. Key assumptions for the Monte-Carlo simulation model are the risk-free interest rate, expected volatility, expected dividends and correlation coefficient.

• Stock Options and Employee Stock Purchase Plan.  The fair value of stock options and stock purchase rights granted pursuant to our equity incentive plans and our 2000 Employee Stock Purchase Plan ("ESPP"), respectively is determined using the Black-Scholes valuation model based on the multiple-award valuation method. Key assumptions of the Black-Scholes valuation model are the risk-free interest rate, expected volatility, expected term and expected dividends.

The determination of the fair value of market-based restricted stock units, stock options and ESPP is affected by assumptions regarding subjective and complex variables. Generally, our assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes.

The estimated assumptions used in the Black-Scholes valuation model to value our stock option grants were as follows:

	Three Months Ended
	June 30,
	2011		2010
Risk-free interest rate	1.0- 1.8	%	1.2- 2.4	%
Expected volatility	40- 41	%	41- 44	%
Weighted-average volatility	40	%	43	%
Expected term	4.4years		4.4years
Expected dividends	None		None

The estimated assumptions used in the Monte-Carlo simulation model to value our market-based restricted stock units were as follows:

	Three Months Ended
	June 30,
	2011
Risk-free interest rate	0.2- 0.6	%
Expected volatility	14- 83	%
Weighted-average volatility	35	%
Expected dividends	None

There were no market-based restricted stock units valued during the three months ended June 30, 2010 and no ESPP shares valued during the three months ended June 30, 2011 and 2010.

Stock-Based Compensation Expense

Employee stock-based compensation expense recognized during the three months ended June 30, 2011 and 2010 was calculated based on awards ultimately expected to vest and has been reduced for estimated forfeitures. In subsequent periods, if actual forfeitures differ from those estimates, an adjustment to stock-based compensation expense will be recognized at that time.

The following table summarizes stock-based compensation expense resulting from stock options, restricted stock, restricted stock units and the ESPP included in our Condensed Consolidated Statements of Operations (in millions):

		Three Months Ended
			June 30,
		2011		2010
Cost of goods sold	$		1	$	1
Marketing and sales			5		4
General and administrative			9		12
Research and development			23		30
Stock-based compensation expense	$		38	$	47

During the three months ended June 30, 2011 and 2010, we did not recognize any provision for or benefit from income taxes related to our stock-based compensation expense.

As of June 30, 2011, our total unrecognized compensation cost related to stock options was $28 million and is expected to be recognized over a weighted-average service period of 1.2 years. As of June 30, 2011, our total unrecognized compensation cost related to restricted stock, restricted stock units and notes payable in shares of common stock (collectively referred to as "restricted stock rights") was $388 million and is expected to be recognized over a weighted-average service period of 2.2 years. Of the $388 million of unrecognized compensation cost above, $24 million relates to performance-based restricted stock units for which we ceased recognizing stock-based compensation expense during fiscal year 2010 because we determined that the performance attainment was neither probable nor improbable of achievement.

Stock Options

The following table summarizes our stock option activity for the three months ended June 30, 2011:

					Weighted-
					Average
				Weighted-	Remaining		Aggregate
	Options			Average	Contractual Term		Intrinsic Value
	(in thousands)			Exercise Price	(in years)		(in millions)
Outstanding as of March 31, 2011	12,899		$	31.39
Granted	105			22.19
Exercised	(711	)		19.86
Forfeited, cancelled or expired	(698	)		23.38
Outstanding as of June 30, 2011	11,595			32.50	5.02	$	29
Exercisable as of June 30, 2011	8,776			35.68	4.20	$	15

The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price as of June 30, 2011, which would have been received by the option holders had all the option holders exercised their options as of that date. The weighted-average grant date fair values of stock options granted during the three months ended June 30, 2011 and 2010 were $7.70 and $6.46, respectively. We issue new common stock from our authorized shares upon the exercise of stock options.

Restricted Stock Rights

The following table summarizes our restricted stock rights activity, excluding performance-based and market-based restricted stock unit activity discussed below, for the three months ended June 30, 2011:

	Restricted Stock			Weighted-
	Rights			Average Grant
	(in thousands)			Date Fair Value
Balance as of March 31, 2011	13,971		$	22.01
Granted	6,995			22.35
Vested	(2,370	)		22.43
Forfeited or cancelled	(664	)		19.91
Balance as of June 30, 2011	17,932			22.16

The weighted-average grant date fair values of restricted stock rights granted during the three months ended June 30, 2011 and 2010 were $22.35 and $17.65, respectively.

Performance-Based Restricted Stock Units

The following table summarizes our performance-based restricted stock unit activity for the three months ended June 30, 2011:

	Performance-
	Based Restricted			Weighted-
	Stock Units			Average Grant
	(in thousands)			Date Fair Value
Balance as of March 31, 2011	1,993		$	47.00
Forfeited or cancelled	(169	)		20.01
Balance as of June 30, 2011	1,824			49.50

Market-Based Restricted Stock Units

During the three months ended June 30, 2011, we granted 670,000 market-based restricted stock units to certain members of executive management with a weighted average fair value of $34.77 per unit. Our market-based restricted stock units vest contingent upon the achievement of pre-determined market and service conditions. If these market conditions are not met but service conditions are met, the restricted stock units will not vest; however, any compensation expense we have recognized to date will not be reversed. The number of shares of common stock to be received at vesting will range from zero percent to 200 percent of the target number of stock units based on our total stockholder return ("TSR") relative to the performance of companies in the NASDAQ-100 Index for each measurement period over a three year period.

Stock Repurchase Program

On February 1, 2011, our Board of Directors authorized a program to repurchase up to $600 million of our common stock over the next 18 months. The timing and actual amount of the stock repurchases will depend on several factors including price, capital availability, regulatory requirements, alternative investment opportunities and other market conditions. We are not obligated to repurchase any specific number of shares under the program and the repurchase program may be modified, suspended or discontinued at any time. During three months ended June 30, 2011, we repurchased and retired approximately 4 million shares of our common stock for approximately $91 million, net of commissions.

Annual Meeting of Stockholders

At our Annual Meeting of Stockholders, held on July 28, 2011, our stockholders approved (1) an amendment to our 2000 Equity Incentive Plan (the "Equity Plan") to increase the number of shares authorized for issuance under the Equity Plan by 10 million shares and (2) an amendment to the ESPP to increase the number of shares authorized under the ESPP by 3.5 million shares.