Stock-Based Compensation

Stock-based compensation expense included in our consolidated statements of comprehensive income was as follows:



	Three Months Ended						Six Months Ended
(In thousands)	June 26, 2015			June 27, 2014			June 26, 2015			June 27, 2014

Cost of sales	$	440		$	495		$	847		$	961
Research and development expense	9,670			10,877			18,613			21,150
Selling, general, and administrative expense	11,907			13,349			22,882			25,957
Pre-tax stock-based compensation expense	22,017			24,721			42,342			48,068
Less: income tax benefit	(6,115		)	(6,651		)	(11,736		)	(12,845		)
Net stock-based compensation expense	$	15,902		$	18,070		$	30,606		$	35,223

No stock-based compensation was capitalized during any period presented above. As of June 26, 2015, unrecognized stock-based compensation cost related to outstanding unvested stock options, restricted stock units ("RSU"s), performance-based restricted stock units ("PRSU"s) and employee stock purchase plan ("ESPP") shares was approximately $151.0 million. This unrecognized stock-based compensation cost is expected to be recognized over a weighted average period of approximately 2.3 years. We apply an expected forfeiture rate when amortizing stock-based compensation expense. To the extent our actual forfeiture rate is different from our estimate, stock-based compensation related to these awards will be different from our expectations.

The assumptions used to estimate the fair value of the RSU awards granted under our stock-based compensation plans were as follows:



	Three Months Ended						Six Months Ended
	June 26, 2015			June 27, 2014			June 26, 2015			June 27, 2014
ESPP Purchase Rights:
Expected term (in years)	0.8			1.0			0.8			1.0
Expected stock price volatility	41.8		%	25.5		%	41.8		%	25.5		%
Risk-free interest rate	0.1		%	0.1		%	0.1		%	0.1		%
Dividend yield	1.6		%	1.9		%	1.6		%	1.9		%
Weighted-average estimated fair value	$	12.90		$	7.68		$	12.90		$	7.68

RSUs:
Risk-free interest rate	0.8		%	0.7		%	0.8		%	0.7		%
Dividend yield	1.6		%	1.9		%	1.6		%	1.9		%
Weighted-average estimated fair value	$	43.24		$	31.01		$	42.63		$	30.97

PRSUs:
Expected Altera stock price volatility	30.0		%	32.2		%	30.0		%	32.2		%
Expected Philadelphia Semiconductor Index stock price volatility	19.7		%	24.3		%	19.7		%	24.3		%
Risk-free interest rate	1.0		%	0.9		%	1.0		%	0.9		%
Dividend yield	1.6		%	1.9		%	1.6		%	1.9		%
Weighted-average estimated fair value per share	$	58.02		$	31.18		$	58.02		$	31.18

We granted 187,604, 303,260, 262,647 and 66,489 market-based PRSUs in 2015, 2014, 2013 and 2012, respectively, to senior executives with vesting that is contingent on both the market performance of Altera stock as compared to the Philadelphia Semiconductor Index during a 3-year measurement period and continued service. As of June 26, 2015, the majority of these market-based PRSUs were still outstanding, and no market-based PRSUs had vested. For market-based PRSU grants made on May 4, 2015, May 13, 2014, May 5, 2014, May 6, 2013 and July 30, 2012, the weighted average grant date fair value was $58.02, $31.13, $31.23, $33.03 and $41.18, respectively.

A summary of activity for our RSUs and PRSUs for the six months ended June 26, 2015 and information regarding RSUs and PRSUs outstanding and expected to vest as of June 26, 2015 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, 2014	5,506		$	34.00
Grants	1,843		$	44.45
Vested	(1,353	)	$	34.18
Forfeited/Cancelled	(188	)	$	35.24
Outstanding, June 26, 2015	5,808		$	37.24	1.6	$	297,945
Vested and expected to vest, June 26, 2015	5,094		$	37.24	1.5	$	261,331


(1)	Aggregate intrinsic value represents the closing price per share of our stock on June 26, 2015, multiplied by the number of RSUs and market-based PRSUs outstanding or vested and expected to vest as of June 26, 2015.

A summary of stock option activity for the six months ended June 26, 2015 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of June 26, 2015 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, 2014	2,074		$	32.60
Grants	—		$	—
Exercises	(344	)	$	23.57
Forfeited/Cancelled/Expired	(19	)	$	30.46
Outstanding, June 26, 2015	1,711		$	34.45	5.2	$	28,838
Exercisable, June 26, 2015	1,403		$	34.10	4.9	$	24,129
Vested and expected to vest, June 26, 2015	1,696		$	34.45	5.2	$	28,583


(1)	For those stock options with an exercise price below the closing price per share on June 26, 2015, aggregate intrinsic value represents the difference between the exercise price and the closing price per share of our common stock on June 26, 2015, multiplied by the number of stock options outstanding, exercisable, or vested and expected to vest as of June 26, 2015.

For the three and six months ended June 26, 2015, 0.2 million and 0.3 million of non-qualified stock option shares were exercised, respectively. The total intrinsic value of stock options exercised for the three and six months ended June 26, 2015 was $5.1 million and $6.8 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 consideration recorded as a result of stock option exercises during the three and six months ended June 26, 2015 was $6.0 million and $8.1 million, respectively.

As of June 26, 2015, our 2005 Equity Incentive Plan had a total of 25.0 million shares reserved for future issuance, of which 16.7 million shares were available for future grants.

ESPP

We sold 386,613 shares of common stock under the ESPP at a price of $27.41 during the six months ended June 26, 2015 and 376,031 shares of common stock under the ESPP at a price of $27.61 during the six months ended June 27, 2014. As of June 26, 2015, 4.0 million shares were available for future issuance under the ESPP.