Stock Based Compensation

3 Months Ended

Sep. 30, 2011

Stock Based Compensation [Abstract]

Stock Based Compensation

9. Stock-Based Compensation

During the three months ended September 30, 2011, the Company recognized in expense $9 million for stock-based compensation related to the vesting of options issued under stock option plans and the ESPP, compared to $11 million in the comparative prior-year period. As of September 30, 2011, total compensation cost related to unvested stock options and ESPP rights issued to employees but not yet recognized was $80 million and will be amortized on a straight-line basis over a weighted average service period of approximately 2.5 years.

During the three months ended September 30, 2011 and the comparative prior-year period, the Company recognized in expense $8 million related to the vesting of awards of restricted stock and restricted stock units (“RSUs”). As of September 30, 2011, the aggregate unamortized fair value of all unvested RSUs was $60 million, which will be recognized on a straight-line basis over a weighted average vesting period of approximately 1.8 years.

Stock Option Activity

The following table summarizes activity under the Company’s stock option plans (in millions, except per share amounts and remaining contractual lives):

						Weighted Average
				Weighted Average		Remaining		Aggregate
	Number			Exercise Price		Contractual Life		Intrinsic
	of Shares			Per Share		(in years)		Value
Options outstanding at July 1, 2011		10.2		$	22.49
Granted		2.5			29.64
Exercised		(0.2	)		7.99
Canceled or expired		—			—
Options outstanding at September 30, 2011		12.5		$	24.20		4.9	$	46
Exercisable at September 30, 2011		6.2		$	20.75		3.9	$	38
Vested and expected to vest after September 30, 2011		12.3		$	24.13		4.9	$	46

If an option has an exercise price that is less than the quoted price of the Company’s common stock at the particular time, the aggregate intrinsic value of that option at that time is calculated based on the difference between the exercise price of the underlying options and the quoted price of the Company’s common stock at that time. As of September 30, 2011, the Company had options outstanding to purchase an aggregate of 5.8 million shares with an exercise price below the quoted price of the Company’s stock on that date resulting in an aggregate intrinsic value of $46 million at that date. During the three months ended September 30, 2011, the aggregate intrinsic value of options exercised under the Company’s stock option plans was $5 million, determined as of the date of exercise, compared to $2 million in the comparative prior-year period.

Fair Value Disclosure — Binomial Model

The fair value of stock options granted is estimated using a binomial option-pricing model. The binomial model requires the input of highly subjective assumptions including the expected stock price volatility, the expected price multiple at which employees are likely to exercise stock options and the expected employee termination rate. The Company uses historical data to estimate option exercise, employee termination, and expected stock price volatility within the binomial model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of stock options granted was estimated using the following weighted average assumptions:

	Three Months Ended
	Sept. 30,	Oct. 1,
	2011	2010
Suboptimal exercise factor	1.81	1.81
Range of risk-free interest rates	0.13% to 1.43%	0.26% to 1.90%
Range of expected stock price volatility	0.41 to 0.54	0.42 to 0.59
Weighted average expected volatility	0.48	0.52
Post-vesting termination rate	2.63%	2.42%
Dividend yield	—	—
Fair value	$11.97	$11.26

The weighted average expected term of the Company’s stock options granted during the three months ended September 30, 2011 was 4.9 years, compared to 4.7 years in the comparative prior-year period.

Fair Value Disclosure — Black-Scholes-Merton Model

The fair value of ESPP purchase rights issued is estimated at the date of grant of the purchase rights using the Black-Scholes-Merton option-pricing model. The Black-Scholes-Merton option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The Black-Scholes-Merton option-pricing model requires the input of highly subjective assumptions such as the expected stock price volatility and the expected period until options are exercised. Purchase rights under the current ESPP provisions are granted on either June 1 or December 1. ESPP activity was immaterial to the condensed consolidated financial statements for the three months ended September 30, 2011 and October 1, 2010.

RSU Activity

The following table summarizes RSU activity (in millions, except weighted average grant date fair value):

				Weighted Average
	Number			Grant Date
	of Shares			Fair Value
RSUs outstanding at July 1, 2011		3.1		$	28.85
Granted		0.9			29.64
Vested		(0.6	)		23.94
Canceled or expired		—			—
RSUs outstanding at September 30, 2011		3.4		$	29.83
Expected to vest after September 30, 2011		3.3		$	29.90

The fair value of each RSU is the market price of our stock at the date of grant. RSUs are generally payable in an equal number of shares of the Company’s common stock at the time of vesting of the units. The grant-date fair value of the shares underlying the restricted stock awards at the date of grant was $28 million for the three months ended September 30, 2011. These amounts are being recognized to expense over the corresponding vesting periods. For purposes of valuing these awards, the Company has assumed a forfeiture rate of 2.3%, based on a historical analysis indicating forfeitures for these types of awards.