(14) 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 six months ended September 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 and ESPP were as follows:


	Stock Option Grants				ESPP
	Three Months Ended		Six Months Ended		Three and Six Months Ended
	September 30,		September 30,		September 30,
	2011	2010	2011	2010	2011	2010
Risk-free interest rate	0.4- 1.2%	0.8- 1.7%	0.4- 1.8%	0.8- 2.4%	0.1%	0.2- 0.3%
Expected volatility	41- 44%	41- 45%	40- 44%	41- 45%	39- 40%	38%
Weighted-average volatility	44%	43%	43%	43%	39%	38%
Expected term	4.4years	4.4years	4.4years	4.4years	6-12 months	6-12 months
Expected dividends	None	None	None	None	None	None

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


	Six Months Ended
	September 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 granted during the three months ended September 30, 2011 and the six months ended September 30, 2010.

Stock-Based Compensation Expense

Employee stock-based compensation expense recognized during the three and six months ended September 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 September 30,		Six Months Ended September 30,
	2011	2010	2011	2010
Cost of goods sold	$ -	$ -	$ 1	$ 1
Marketing and sales	6	6	11	10
General and administrative	9	10	18	23
Research and development	28	27	51	56
Stock-based compensation expense	$ 43	$ 43	$ 81	$ 90

During the three and six months ended September 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 September 30, 2011, our total unrecognized compensation cost related to stock options was $22 million and is expected to be recognized over a weighted-average service period of 1.3 years. As of September 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 $337 million and is expected to be recognized over a weighted-average service period of 2.1 years. During the three months ended September 30, 2011, we determined that the performance criteria for certain performance-based restricted stock units was improbable of achievement and accordingly reversed stock-based compensation expense of $7 million previously recognized within our Condensed Consolidated Statement of Operations. As the criteria for these certain performance-based restricted stock units is excluded from the total unrecognized compensation cost related to restricted stock rights as of September 30, 2011.

Stock Options

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

	Options (in thousands)	Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding as of March 31, 2011	12,899	$ 31.39
Granted	399	20.70
Exercised	(874)	20.09
Forfeited, cancelled or expired	(1,039)	23.72
Outstanding as of September 30, 2011	11,385	32.59	4.95	$ 10
Exercisable as of September 30, 2011	8,671	35.84	4.11	$ 5

The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price as of September 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 and six months ended September 30, 2011 were $7.18 and $7.32, respectively. The weighted-average grant date fair values of stock options granted during the three and six months ended September 30, 2010 were $5.76 and $6.28, 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 six months ended September 30, 2011:

	Restricted Stock Rights	Weighted-Average Grant
	(in thousands)	Date Fair Value
Balance as of March 31, 2011	13,971	$ 22.01
Granted	8,249	22.18
Vested	(2,945)	22.29
Forfeited or cancelled	(1,258)	20.07
Balance as of September 30, 2011	18,017	22.18

The weighted-average grant date fair values of restricted stock rights granted during the three and six months ended September 30, 2011 were $21.21 and $22.18, respectively. The weighted-average grant date fair values of restricted stock rights granted during the three and six months ended September 30, 2010 were $16.19 and $17.55, respectively.

Performance-Based Restricted Stock Units

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

	Performance-Based Restricted Stock Units	Weighted-Average Grant
	(in thousands)	Date Fair Value
Balance as of March 31, 2011	1,993	$ 47.00
Forfeited or cancelled	(215)	20.26
Balance as of September 30, 2011	1,778	50.23

Market-Based Restricted Stock Units

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. The following table summarizes our market-based restricted stock unity activity for the six months ended September 30, 2011:

	Market-Based Restricted Stock Units	Weighted-Average Grant
	(in thousands)	Date Fair Value
Balance as of March 31, 2011	-	$ -
Granted	670	34.77
Forfeited or cancelled	(35)	34.77
Balance as of September 30, 2011	635	34.77

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 six months ended September 30, 2011, we repurchased and retired approximately 9 million shares of our common stock for approximately $189 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.