Stock Based Compensation

9 Months Ended

Oct. 26, 2014

Employee Service Share-based Compensation, Aggregate Disclosures [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Our stock-based compensation expense is associated with stock options, restricted stock units, or RSUs, performance stock units, or PSUs, and our employee stock purchase plan, or ESPP.

We estimate the fair value of employee stock options on the date of grant using a binomial model and recognize the expense using a straight-line attribution method over the requisite employee service period. We use the closing trading price of our common stock on the date of grant, minus a dividend yield discount, as the fair value of awards of RSUs and PSUs. The compensation expense for the RSUs is recognized using a straight-line attribution method over the requisite employee service period while compensation expense for PSUs is recognized using an accelerated amortization model. We estimate the fair value of shares to be issued under our ESPP using the Black-Scholes model at the commencement of an offering period in March and September of each year.  Stock-based compensation for our employee stock purchase plan is expensed using an accelerated amortization model.

Our condensed consolidated statements of income include stock-based compensation expense, net of amounts capitalized as inventory, as follows:

	Three Months Ended				Nine Months Ended
	October 26, 2014		October 27, 2013		October 26, 2014		October 27, 2013
	(In thousands)
Cost of revenue	$	3,021	$	3,090	$	8,596	$	7,911
Research and development	22,680		20,902		64,636		61,392
Sales, general and administrative	15,734		10,307		42,139		30,788
Total	$	41,435	$	34,299	$	115,371	$	100,091

Equity Award Activity

The following summarizes the stock option, RSU and PSU activity under our equity incentive plans:

	Options Outstanding		Weighted Average Exercise Price
Stock Options	(In thousands)		(Per share)
Balances, January 26, 2014	32,504		$14.22
Granted	86		$18.66
Exercised	(7,945	)	$12.59
Cancelled	(1,361	)	$19.49
Balances, October 26, 2014	23,284		$14.48

	RSUs and PSUs Outstanding		Weighted Average Grant-Date Fair Value
RSUs and PSUs	(In thousands)		(Per share)
Balances, January 26, 2014	18,852		$13.82
Granted (1)	12,506		$17.63
Vested	(7,138	)	$13.75
Cancelled	(1,089	)	$14.21
Balances, October 26, 2014	23,131		$15.88

(1) Includes the total number of PSUs issuable if the maximum corporate financial performance target level for fiscal year 2015 is achieved. Depending on the actual level of achievement of the corporate performance goal at the end of fiscal year 2015, the range of PSUs issued could be from 1.3 million to 2.5 million shares. The PSUs were granted during the first quarter of fiscal year 2015 to our CEO and senior management as approved by our Compensation Committee.

Of the total grant-date fair value, we estimated the stock-based compensation expense related to the stock options, RSUs and PSUs that were not expected to vest was $35.2 million for the nine months ended October 26, 2014. As of October 26, 2014 and January 26, 2014, the aggregate amount of unearned stock-based compensation expense related to our stock options, RSUs and PSUs was $322.6 million and $241.3 million, respectively, adjusted for estimated forfeitures.  As of October 26, 2014 and January 26, 2014, we expected to recognize the unearned stock-based compensation expense related to stock options over an estimated weighted average amortization period of 2.0 years and 2.5 years, respectively. As of October 26, 2014 and January 26, 2014, we expected to recognize the unearned stock-based compensation expense related to RSUs and PSUs over an estimated weighted average amortization period of 3.0 years and 2.7 years, respectively.