Annual report pursuant to Section 13 and 15(d)

Common Stock and Stock-Based Incentive Compensation Plans

v3.22.0.1
Common Stock and Stock-Based Incentive Compensation Plans
 12 Months Ended
Dec. 25, 2021
Share-based Payment Arrangement [Abstract]  
Common Stock and Stock-Based Incentive Compensation Plans Common Stock and Stock-Based Compensation
Common Stock
Shares of common stock outstanding were as follows:
Year Ended
December 25,
2021		 December 26,
2020		 December 28,
2019
(In millions)
Balance, beginning of period 1,211  1,170  1,005 
Common stock issued under employee equity plans 12  14  20 
Repurchases of common stock (17) —  — 
Common stock repurchases for tax withholding on equity awards (2) (1) — 
Issuance of common stock upon warrant exercise —  —  75 
Issuance of common stock to settle convertible debt 3  28  69 
Issuance of treasury stock to partially settle debt —  —  1 
Balance, end of period 1,207  1,211  1,170 
Stock Repurchase Program
In May 2021, the Company’s Board of Directors approved a stock repurchase program authorizing up to $4 billion of repurchases of the Company’s outstanding common stock (the Repurchase Program). During the year ended December 25, 2021, the Company repurchased 16.7 million shares of its common stock under the Repurchase Program for $1.8 billion. As of December 25, 2021, $2.2 billion remained available for future stock repurchases under this program. This Repurchase Program does not obligate the Company to acquire any common stock, has no termination date and may be suspended or discontinued at any time.
Stock-Based Compensation
The Company’s employee equity programs are intended to attract, retain and motivate highly qualified employees. On April 29, 2004, the Company’s stockholders approved the 2004 Equity Incentive Plan, as amended and restated (the 2004 Plan). In the fourth quarter of 2017, the Company introduced the 2017 ESPP, as amended and restated (the 2017 Plan).
Under the 2004 Plan, stock options generally vest and become exercisable over a three-year period from the date of grant and expire within seven years after the grant date. Unvested shares that are reacquired by the Company from forfeited outstanding equity awards become available for grant and may be reissued as new awards.
Under the 2004 Plan, the Company can grant (i) stock options, and (ii) RSUs, including time-based RSUs and PRSUs.
Stock Options. Under the 2004 Plan, nonstatutory and incentive stock options may be granted. The exercise price of the shares subject to each nonstatutory stock option and incentive stock option cannot be less than 100% of the fair market value of the Company’s common stock on the date of the grant. The exercise price of each option granted under the 2004 Plan must be paid in full at the time of the exercise.
Time-based RSUs. Time-based RSUs are awards that can be granted to any employee, director or consultant and that obligate the Company to issue a specific number of shares of the Company’s common stock in the future if the vesting terms and conditions are satisfied.
PRSUs. PRSUs can be granted to certain of the Company’s senior executives. The performance metrics can be financial performance, non-financial performance and/or market conditions. Each PRSU award reflects a target number of shares (Target Shares) that may be issued to an award recipient before adjusting based on the Company’s financial performance, non-financial performance and/or market conditions. The actual number of shares that a grant recipient receives at the end of the period may range from 0% to 250% of the Target Shares granted, depending upon the degree of achievement of the performance target designated by each individual award.
ESPP. Under the 2017 Plan, eligible employees who participate in an offering period may have up to 15% of their eligible earnings withheld, up to certain limitations, to purchase shares of common stock at 85% of the lower of the fair market value on the first or the last business day of the six-month offering period. The offering periods commence in May and November each year.
As of December 25, 2021, the Company had 50 million shares of common stock that were available for future grants and 17 million shares reserved for issuance upon the exercise of outstanding stock options or the vesting of unvested RSUs, including PRSUs, under the 2004 Plan. In addition, the Company had 39 million shares of common stock that were available for issuance under the 2017 plan.
Valuation and Expense
Stock-based compensation expense was allocated in the consolidated statements of operations as follows:
December 25, 2021 December 26, 2020 December 28, 2019
  (In millions)
Cost of sales $ 5  $ 6  $ 6 
Research and development 246  173  129 
Marketing, general, and administrative 128  95  62 
Total stock-based compensation expense before income taxes 379  274  197 
Income tax benefit (58) (42) — 
Total stock-based compensation expense, net of income taxes $ 321  $ 232  $ 197 
Stock Options. The weighted-average estimated fair value of employee stock options granted for the years ended December 25, 2021, December 26, 2020 and December 28, 2019 was $46.07, $38.49 and $13.31 per share, respectively, using the following assumptions:
December 25, 2021 December 26, 2020 December 28, 2019
Expected volatility 51.77  % 57.87  %
52.60% - 56.51%
Risk-free interest rate 0.69  % 0.18  %
1.53% - 2.51%
Expected dividends —  % —  % —  %
Expected life (in years) 4.55 4.30
3.94 - 3.95
The Company uses a combination of the historical volatility of its common stock and the implied volatility for publicly traded options on the Company’s common stock as the expected volatility assumption. The risk-free interest rate is based on the rate for a U.S. Treasury zero-coupon yield curve with a term that approximates the expected life of the option grant at the date closest to the option grant date. The expected dividend yield is zero as the Company does not expect to pay dividends in the near future. The expected term of employee stock options represents the weighted-average period the stock options are expected to remain outstanding.
The following table summarizes stock option activity and related information:
Outstanding Number
of Shares		 Weighted-
Average
Exercise
Price		 Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life
(in years)
  (In millions, except share price)
Balance as of December 26, 2020 7  $ 12.91 
Granted 1  $ 107.58 
Exercised (3) $ 4.38 
Balance as of December 25, 2021 5  $ 23.98  $ 614  2.80
Exercisable December 25, 2021 4  $ 13.24  $ 561  2.23
The total intrinsic value of stock options exercised for 2021, 2020 and 2019 was $277 million, $180 million and $84 million, respectively.
As of December 25, 2021, the Company had $23 million of total unrecognized compensation expense related to stock options, which will be recognized over the weighted-average period of 1.76 years.
Time-based RSUs. The weighted-average grant date fair values of time-based RSUs granted during 2021, 2020 and 2019 were $107.02, $78.59 and $32.52 per share, respectively.
The following table summarizes time-based RSU activity and related information:
Number
of Shares		 Weighted- Average Grant-Date Fair Value Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life
(in years)
  (In millions except share price)
Unvested shares as of December 26, 2020 12  $ 43.98 
Granted 5  $ 107.02 
Forfeited (1) $ 63.99 
Vested (6) $ 36.37 
Unvested shares as of December 25, 2021 10  $ 79.03  $ 1,460  1.26
The total fair value of time-based RSUs vested during 2021, 2020 and 2019 was $678 million, $642 million and $395 million, respectively.
As of December 25, 2021, the Company had $704 million of total unrecognized compensation expense related to time-based RSUs, which will be recognized over the weighted-average period of 1.92 years.
PRSUs. The weighted-average grant date fair values of PRSUs granted during 2021, 2020 and 2019 were $153.89, $122.95 and $50.00, respectively, using the following assumptions:
December 25, 2021 December 26, 2020 December 28, 2019
Expected volatility 57.75  %
55.74% - 60.10%
60.54% - 62.52%
Risk-free interest rate 0.43  %
0.14% - 1.41%
1.56% - 2.49%
Expected dividends —  % —  % —  %
Expected term (in years) 3.00
2.48 - 3.00
2.48 - 5.00
The Company uses the historical volatility of its common stock and risk-free interest rate based on the rate for a U.S. Treasury zero-coupon yield curve with a term that approximates the expected life of the PRSUs grant at the date closest to the grant date. The expected dividend yield is zero as the Company does not expect to pay dividends in the near future. The expected term of PRSUs represents the requisite service periods of these PRSUs.
The following table summarizes PRSU activity and related information:
  Number
of Shares		 Weighted-Average
Grant-Date Fair Value		 Aggregate Intrinsic Value Weighted-Average Remaining Contractual Life
(in years)
(In millions except share price)
Unvested shares as of December 26, 2020 3  $ 55.63 
Granted —  $ 153.89 
Forfeited —  $ — 
Vested (1) $ 24.40 
Unvested shares as of December 25, 2021 2  $ 78.59  $ 338  1.50
The total fair value of PRSUs vested during 2021, 2020 and 2019 was $98 million, $76 million and $65 million, respectively.
As of December 25, 2021, the Company had $103 million of total unrecognized compensation expense related to PRSUs, which will be recognized over the weighted-average period of 1.50 years.
ESPP. The weighted-average grant date fair value for the ESPP during 2021, 2020 and 2019 was $27.27, $20.97 and $9.96 per share, respectively, using the following assumptions:
December 25, 2021 December 26, 2020 December 28, 2019
Expected volatility
36.90% - 39.39%
55.16% - 66.53%
48.95% - 67.02%
Risk-free interest rate
0.04% - 0.07%
0.11% - 0.15%
1.58% - 2.46%
Expected dividends —  % —  % —  %
Expected term (in years) 0.50 0.50 0.50
The Company uses the historical volatility of its common stock and the risk-free interest rate based on the rate for a U.S. Treasury zero-coupon yield curve with a term that approximates the expected life of the ESPP grant at the date closest to the ESPP grant date. The expected dividend yield is zero as the Company does not expect to pay dividends in the near future. The expected term of the ESPP represents the six-month offering period.
During 2021, 1 million shares of common stock were purchased under the ESPP at a purchase price of $65.43 resulting in aggregate cash proceeds of $92 million. As of December 25, 2021, the Company had $19 million of total unrecognized compensation expense related to the ESPP, which will be recognized over the weighted-average period of 0.38 years.