Stockholders’ Equity and Stock-Based Compensation

We have adopted compensation plans that provide stock-based awards as a form of compensation for employees, officers, and directors. We have issued stock-based awards in the form of stock options, restricted stock units, and stock appreciation rights under our equity incentive plans, as well as shares under our Employee Stock Purchase Plan (“ESPP”). We recognize stock-based compensation expense net of estimated forfeitures.

Stock-based compensation expense recorded in our condensed consolidated statements of operations was as follows:



	Fiscal Quarter Ended		Fiscal Year-to-Date Ended
	March 29, 2013 (2)	March 30, 2012 (2)	March 29, 2013 (2)	March 30, 2012 (2)
	(in thousands)
Stock-based compensation:
Stock options (1)	$3,690	$5,995	$11,999	$12,054
Restricted stock units	10,519	5,880	18,859	11,144
Employee stock purchase plan	736	144	1,791	225
Stock appreciation rights	—	44	—	79
Total stock-based compensation	14,945	12,063	32,649	23,502
Benefit from income taxes	(4,497)	(3,822)	(9,910)	(7,491)
Total stock-based compensation, net of tax	$10,448	$8,241	$22,739	$16,011


(1)	Expense excludes $0.2 million and $0.4 million in the second quarter of fiscal 2012 and fiscal year-to-date period ended March 30, 2012 related to stock-based compensation which was capitalized to property, plant and equipment.


(2)	We also recognize a tax benefit from certain exercises of incentive stock options and shares issued under our ESPP which are not included in the table above. This benefit was not greater than $0.1 million in both the second quarter of fiscal 2013 and fiscal 2012, and $0.1 million in both the fiscal year-to-date period ended March 29, 2013 and March 30, 2012.



	Fiscal Quarter Ended		Fiscal Year-to-Date Ended
	March 29, 2013	March 30, 2012	March 29, 2013	March 30, 2012
	(in thousands)
Stock-based compensation expense was classified as follows:
Cost of products	$150	$179	$398	$345
Cost of services	73	61	224	117
Research and development	4,013	2,968	8,900	5,632
Sales and marketing	5,176	4,004	11,167	7,719
General and administrative	5,533	4,851	11,960	9,689
Total stock-based compensation expense	$14,945	$12,063	$32,649	$23,502

At March 29, 2013, total unrecorded stock-based compensation expense associated with employee stock options expected to vest was approximately $46.5 million, which is expected to be recognized over a weighted-average period of 3.0 years. At March 29, 2013, total unrecorded stock-based compensation expense associated with restricted stock units expected to vest was approximately $88.2 million, which is expected to be recognized over a weighted-average period of 2.8 years.

The following table summarizes information about stock options issued to officers, directors, and employees under our 2000 Stock Incentive Plan and 2005 Stock Plan:



	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)		(in years)	(in thousands)
Options outstanding at September 28, 2012	4,622	$32.50
Grants (1)	2,275	30.18
Exercises	(204)	19.60		$2,602
Forfeitures and cancellations	(170)	41.92
Options outstanding at March 29, 2013	6,523	29.63	7.9	31,220
Options vested and expected to vest at March 29, 2013	6,266	29.58	7.8	30,319
Options exercisable at March 29, 2013	2,562	28.03	5.7	17,237


(1)	Includes the additional shares of our common stock issuable upon the exercise of those options subject to the equity award modification that occurred in the first quarter of fiscal 2013 in connection with the special cash dividend.

Aggregate intrinsic value is based on the closing price of our common stock on March 29, 2013 of $33.56 and excludes the impact of stock options that were not in-the-money.

We use the Black-Scholes option pricing model to determine the fair value of employee stock options at the date of grant. The fair value of our stock-based awards was estimated using the following weighted-average assumptions:



	Fiscal Quarter Ended		Fiscal Year-to-Date Ended
	March 29, 2013	March 30, 2012	March 29, 2013	March 30, 2012
Expected life (in years)	4.37	4.53	4.37	4.53
Risk-free interest rate	0.5%	0.7%	0.5%	0.7%
Expected stock price volatility	37.3%	43.5%	40.5%	44.4%
Dividend yield	—	—	—	—

The following table summarizes information about restricted stock units issued to officers, directors, and employees under our 2005 Stock Plan:



	Shares	Weighted Average Grant Date Fair Value
	(in thousands)
Non-vested at September 28, 2012	2,572	$37.98
Granted	1,124	30.79
Vested	(503)	40.72
Forfeitures	(88)	37.36
Non-vested at March 29, 2013	3,105	34.95

Common Stock Repurchase Program

In November 2009, we announced a stock repurchase program, providing for the repurchase of up to $250.0 million of our Class A common stock. Our Board of Directors approved an additional $300.0 million for our stock repurchase program in July 2010, $250.0 million in July 2011, and an additional $100.0 million in February 2012, for a total authorization of up to $900.0 million in stock repurchases. Stock repurchases under this program may be made through open market transactions, negotiated purchases, or otherwise, at times and in amounts that we consider appropriate. The timing of repurchases and the number of shares repurchased depend upon a variety of factors, including price, regulatory requirements, the rate of dilution from our equity compensation programs, and other market conditions. We may limit, suspend, or terminate the stock repurchase program at any time without prior notice. This program does not have a specified expiration date. Shares repurchased under the program will be returned to the status of authorized but unissued shares of Class A common stock. As of March 29, 2013, the remaining authorization to purchase additional shares is $132.9 million.

Stock repurchase activity under the stock repurchase program during the fiscal year-to-date period ended March 29, 2013 is summarized as follows:



	Shares Repurchased	Cost (in thousands) (1)	Average Price Paid per Share (2)
Repurchase activity for the fiscal quarter ended December 28, 2012	1,674,648	$53,956	$32.20
Repurchase activity for the fiscal quarter ended March 29, 2013	382,481	$11,477	$29.99
Total	2,057,129	$65,433


(1)	Cost of share repurchases includes the price paid per share and applicable commissions.


(2)	Excludes commission costs.

Equity Award Modification

On December 11, 2012, our Board of Directors declared a special dividend in the amount of $4.00 per share on our Class A and Class B Common Stock. Payment of the special dividend was made on December 27, 2012 to all stockholders of record as of the close of business on December 21, 2012 (the "Record Date"). Based on the 102,051,386 shares of Class A and Class B Common Stock outstanding as of the record date, the total special dividend payment was $408.2 million.

In connection with the declaration of this special dividend in the first quarter of fiscal 2013, we adjusted the number and exercise price of certain eligible outstanding stock options and stock appreciation rights granted under our 2005 Stock Plan and 2000 Stock Incentive Plan in a manner intended to preserve the pre-cash dividend economic value of these awards. Eligible awards include stock options and stock appreciation rights that were granted prior to December 2012 and were outstanding as of the day following the record date, with the exception of stock options held by employees in Australia which were not adjusted due to tax considerations. The modification of these existing awards at the dividend declaration date resulted in a total net incremental charge to compensation expense of approximately $7.9 million, of which approximately $3.9 million was recognized in the fiscal year-to-date period ended March 29, 2013. This incremental charge is being recognized over the vesting periods of the original awards, determined on a grant-by-grant basis, based on the extent to which the awards were vested as of the date of modification. The incremental charge related to all fully-vested awards as of the modification date was recognized in the first quarter of fiscal 2013. The vesting period for those awards not fully-vested at the time of modification range from one to four years.

Additionally, all outstanding RSUs under the 2005 Stock Plan that were unvested on the day following the record date, including RSUs that were granted on the record date, were modified to allow for the granting of a dividend equivalent (as such term is defined in the 2005 Stock Plan) with respect to each share of our Class A Common Stock underlying the unvested RSU. The dividend equivalent is payable in cash in a per share amount equal to the per share cash dividend on the same date that the related underlying restricted stock unit shares vest. The granting of the dividend equivalent for all outstanding RSUs resulted in a total net incremental charge to compensation expense of approximately $11.9 million, of which approximately $2.3 million was recognized in the fiscal year-to-date period ended March 29, 2013. This incremental charge is being recognized over the remaining vesting periods of the RSUs at the date of modification, determined on a grant-by-grant basis. These vesting periods range from one to four years beginning on the first anniversary of the grant.