Stock-Based Compensation

Our stock-based compensation plans include the 2005 Equity Incentive Plan (the “2005 Plan”) and the 1987 Employee Stock Purchase Plan (the “ESPP”).

2005 Plan

Our equity incentive program is a broad-based, long-term retention program intended to attract, motivate, and retain talented employees as well as align stockholder and employee interests. The 2005 Plan provides stock-based incentive compensation (“awards”) to both our eligible employees and non-employee directors. Awards that may be granted under the 2005 Plan include non-qualified and incentive stock options, restricted stock units (“RSU”s), performance-based restricted stock units (“PRSU”s), restricted stock awards, stock appreciation rights, and stock bonus awards. To date, awards granted under the 2005 Plan consist of stock options, RSUs and PRSUs. The majority of stock-based awards granted under the 2005 Plan vest over four years. Stock options granted under the 2005 Plan have a maximum contractual term of ten years. As of June 29, 2012, the 2005 Plan had a total of 32.1 million shares reserved for future issuance, of which 22.4 million shares were available for future grants.

A summary of activity for our RSUs and PRSUs for the six months ended June 29, 2012 and information regarding RSUs and PRSUs outstanding and expected to vest as of June 29, 2012 is as follows:



(In thousands, except per share amounts and terms)	Number of Shares		Weighted-Average Grant-Date Fair Market Value Per Share		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value ⁽¹⁾
Outstanding, December 31, 2011	8,176		$	31.62
Grants	1,742		$	33.93
Vested	(550	)	$	28.82
Forfeited	(359	)	$	31.68
Outstanding, June 29, 2012	9,009		$	32.24	1.4	$	304,869
Vested and expected to vest, June 29, 2012	8,040		$	32.24	1.4	$	272,087


(1)	Aggregate intrinsic value represents the closing price per share of our stock on June 29, 2012, multiplied by the number of RSUs and PRSUs outstanding or vested and expected to vest as of June 29, 2012.

A summary of stock option activity for the six months ended June 29, 2012 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of June 29, 2012 is as follows:



(In thousands, except per share amounts and terms)	Number of Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value ⁽¹⁾
Outstanding, December 31, 2011	6,138		$	22.96
Grants	554		$	34.22
Exercises	(923	)	$	18.29
Forfeited/Cancelled/Expired	(11	)	$	17.47
Outstanding, June 29, 2012	5,758		$	24.80	4.2	$	59,372
Exercisable, June 29, 2012	4,452		$	21.23	2.7	$	57,356
Vested and expected to vest, June 29, 2012	5,569		$	24.38	4.0	$	59,219


(1)	For those stock options with an exercise price below the closing price per share on June 29, 2012, aggregate intrinsic value represents the difference between the exercise price and the closing price per share of our common stock on June 29, 2012, multiplied by the number of stock options outstanding, exercisable, or vested and expected to vest as of June 29, 2012.

For the three and six months ended June 29, 2012, 0.2 million and 0.9 million non-qualified stock option shares were exercised, respectively. The total intrinsic value of stock options exercised for the three and six months ended June 29, 2012 was $4.6 million and $18.5 million, respectively. The aggregate intrinsic value represents the difference between the exercise price and the selling price received by option holders upon the exercise of stock options during the period. The total cash received from employees as a result of employee stock option exercises during the three and six months ended June 29, 2012 was $13.2 million and $26.1 million, respectively.

ESPP

Our ESPP has two consecutive, overlapping twelve-month offering periods, with a new period commencing on the first trading day on or after May 1 and November 1 of each year and terminating on the last trading day on or before April 30 and October 31. Each twelve-month offering period generally includes two six-month purchase periods. The purchase price at which shares are sold under the ESPP is 85% of the lower of the fair market value of a share of our common stock on (1) the first day of the offering period, or (2) the last trading day of the purchase period. If the fair market value at the end of any purchase period is less than the fair market value at the beginning of the offering period, each participant is automatically withdrawn from the current offering period following the purchase of shares on the purchase date and is automatically re-enrolled in the immediately following offering period.

We sold 304,519 shares of common stock under the ESPP at a price of $30.23 during the six months ended June 29, 2012, and 402,913 shares of common stock under the ESPP at a price of $22.40 during the six months ended July 1, 2011. As of June 29, 2012, 3.2 million shares were available for future issuance under the ESPP.

VALUATION AND EXPENSE INFORMATION

The assumptions used to estimate the fair value of ESPP, RSUs and PRSUs were as follows:



	Three Months Ended						Six Months Ended
	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011

ESPP purchase rights:
Expected term (in years)	1.0			0.8			1.0			0.8
Expected stock price volatility	39.1		%	34.5		%	39.1		%	34.5		%
Risk-free interest rate	0.2		%	0.2		%	0.2		%	0.2		%
Dividend yield	0.9		%	0.5		%	0.9		%	0.5		%
Weighted-average estimated fair value	$	10.54		$	12.88		$	10.54		$	12.88

RSUs and PRSUs:
Risk-free interest rate	0.3		%	0.8		%	0.3		%	0.9		%
Dividend yield	0.9		%	0.5		%	0.9		%	0.6		%
Weighted-average estimated fair value	$	32.52		$	47.85		$	33.13		$	42.07

In addition, we apply an expected forfeiture rate when amortizing stock-based compensation expense. Our stock-based compensation expense included in the consolidated statements of comprehensive income for the three and six months ended June 29, 2012 and July 1, 2011 was as follows:



	Three Months Ended						Six Months Ended
(In thousands)	June 29, 2012			July 1, 2011			June 29, 2012			July 1, 2011

Cost of sales	$	476		$	404		$	924		$	750
Research and development expense	10,475			8,888			20,328			16,470
Selling, general, and administrative expense	12,856			10,907			24,948			20,212
Pre-tax stock-based compensation expense	23,807			20,199			46,200			37,432
Less: income tax benefit	(6,102		)	(5,635		)	(11,806		)	(10,303		)
Net stock-based compensation expense	$	17,705		$	14,564		$	34,394		$	27,129

No stock-based compensation was capitalized during any period presented above. As of June 29, 2012, unrecognized stock-based compensation cost related to outstanding unvested stock options, RSUs, PRSUs and ESPP shares that are expected to vest was approximately $193.6 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted average period of approximately 2.5 years. To the extent the actual forfeiture rate is different from what we have anticipated, stock-based compensation related to these awards will be different from that presented.