Stock Based Compensation

3 Months Ended

Apr. 26, 2015

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 that are based on the Company’s corporate financial performance targets, or PSUs, performance stock units that are based on market conditions, or market-based 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, and we use a Monte Carlo simulation on the date of grant to estimate the fair value of market-based PSUs. We use a Black-Scholes valuation at the commencement of an offering period in March and September of each year to estimate the fair value of the shares to be issued under our ESPP.

Stock-based compensation expense for stock options, RSUs and market-based PSUs is recognized using a straight-line attribution method over the requisite employee service period, while compensation expense for PSUs and ESPP is recognized 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
	April 26, 2015		April 27, 2014
	(In millions)
Cost of revenue	$	2	$	3
Research and development	27		21
Sales, general and administrative	16		12
Total	$	45	$	36

Equity Award Activity

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

	Awards Outstanding		Weighted Average Exercise Price
Stock Options	(In millions)		(Per share)
Balances, January 25, 2015	21		$14.61
Granted	—		—
Exercised	(3	)	$13.87
Cancelled	—		—
Balances, April 26, 2015	18		$14.63

	Awards Outstanding		Weighted Average Grant-Date Fair Value
RSUs, PSUs and Market-based PSUs	(In millions)		(Per share)
Balances, January 25, 2015	23		$15.94
Granted (1) (2)	4		$22.08
Vested	(4	)	$14.99
Cancelled	—		—
Balances, April 26, 2015	23		$17.01

(1) Includes the total PSUs issuable if the corporate financial performance maximum target level for fiscal year 2016 is achieved. Depending on the actual level of achievement of the corporate performance target at the end of fiscal year 2016, the PSUs issued could range from 0 to 2 million shares. We granted PSUs during the first quarter of fiscal year 2016 to our CEO and senior management as approved by our Compensation Committee.

(2) Includes the market-based PSUs issuable if the maximum target for total shareholder return, or TSR, over the 3-year measurement period is achieved. Depending on the ranking of our TSR compared to the respective TSRs of the companies comprising the Standard & Poor’s 500 Index during a 3-year measurement period, the market-based PSUs issued could range from 0 to 0.4 million shares. We granted market-based PSUs during the first quarter of fiscal year 2016 to our CEO and senior management as approved by our Compensation Committee.

Of the estimated total grant-date fair value, the stock-based compensation expense related to the equity awards that are not expected to vest was $5 million and $10 million for the three months ended April 26, 2015 and April 27, 2014, respectively.

The following summarizes aggregated unearned stock-based compensation expense and estimated weighted average amortization period as of April 26, 2015 and January 25, 2015:

	April 26,	January 25,
	2015	2015
	(In millions)
Aggregated unearned stock-based compensation expense	$331	$291
Estimated weighted average amortization period	(In years)
Stock options	1.7	1.8
RSUs, PSUs and market-based PSUs	2.9	2.8
ESPP	0.7	0.5