Note 9 – Benefit Plans

Restricted Stock Units

A summary of the Company’s RSU activity and related information for the three months ended December 28, 2013, is as follows:

 

		Number of RSUs (in thousands)				Weighted- Average Grant Date Fair Value				Aggregate Intrinsic Value (in millions)
Balance at September 28, 2013			13,326			$	435.70
RSUs granted			6,183			$	491.93
RSUs vested			(2,256	)		$	379.23
RSUs cancelled			(216	)		$	461.35
Balance at December 28, 2013			17,037			$	463.23			$	9,543

RSUs that vested during the three months ended December 28, 2013 and December 29, 2012 had a fair value of $1.1 billion and $1.5 billion, respectively, as of the vesting date.

 

Stock Options

A summary of the Company’s stock option activity and related information for the three months ended December 28, 2013, is as follows:

 

		Outstanding Options
		Number of Options (in thousands)				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value (in millions)
Balance at September 28, 2013			4,094			$	139.65
Options granted			1			$	66.26
Options exercised			(1,308	)		$	102.86
Balance at December 28, 2013			2,787			$	156.89				1.2			$	1,124
Exercisable at December 28, 2013			2,768			$	157.56				1.1			$	1,114
Expected to vest after December 28, 2013			19			$	58.03				7.6			$	10

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable. The total intrinsic value of options at the time of exercise was $559 million and $347 million for the three-months ended December 28, 2013 and December 29, 2012, respectively.

The Company had approximately 16.6 million shares reserved for future issuance under the Company’s stock plans as of December 28, 2013. RSUs granted reduce the number of shares available for grant under the Company’s stock plans utilizing a factor of two times the number of RSUs granted. Similarly, RSUs cancelled increase the number of shares available for grant under the Company’s stock plans utilizing a factor of two times the number of RSUs cancelled. Stock options count against the number of shares available for grant on a one-for-one basis.

Share-based Compensation

Share-based compensation cost for RSUs is measured based on the closing fair market value of the Company’s common stock on the date of grant. Share-based compensation cost for stock options and employee stock purchase plan rights (“stock purchase rights”) is measured at the grant date and offering date, respectively, based on the fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. The BSM option-pricing model incorporates various assumptions including expected volatility, estimated expected life and interest rates. The Company recognizes share-based compensation cost over the award’s requisite service period on a straight-line basis for time-based RSUs and on a graded basis for RSUs that are contingent on the achievement of performance metrics.

The weighted-average fair value per stock option granted during the three months ended December 28, 2013 was $333.26. The Company did not grant any stock options during the three months ended December 29, 2012. The weighted-average fair value of stock purchase rights per share was $103.99 and $136.84 during the three months ended December 28, 2013 and December 29, 2012, respectively.

In conjunction with certain business combinations, the Company assumed 29,000 stock options with a weighted-average fair value per share of $407.80 during the three months ended December 29, 2012. The Company did not assume any stock options during the three months ended December 28, 2013.

 

The following table shows a summary of the share-based compensation expense included in the Condensed Consolidated Statements of Operations for the three months ended December 28, 2013 and December 29, 2012 (in millions):

 

		Three Months Ended
		December 28, 2013				December 29, 2012
Cost of sales		$	109			$	85
Research and development			289				224
Selling, general and administrative			283				236
Total share-based compensation expense		$	681			$	545

The income tax benefit related to share-based compensation expense was $265 million and $214 million for the three months ended December 28, 2013 and December 29, 2012, respectively. As of December 28, 2013, the total unrecognized compensation cost related to outstanding stock options and RSUs expected to vest was $6.6 billion, which the Company expects to recognize over a weighted-average period of 3.2 years.

Stock Plans

Rule 10b5-1 Trading Plans

During the three months ended December 28, 2013, executive officers Timothy D. Cook, Peter Oppenheimer, D. Bruce Sewell, Philip W. Schiller, Daniel Riccio and Jeffrey E. Williams had equity trading plans in place in accordance with Rule 10b5-1(c)(1) under the Exchange Act. An equity trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including shares acquired pursuant to the Company’s employee and director equity plans.