. Employee Benefit Plans

401(k) Plan

We have a defined contribution 401(k) retirement plan (the “401(k) Plan”) covering substantially all employees that meet certain age requirements. Employees may contribute up to 90% of their compensation per year (subject to a maximum limit by federal tax law). Under the 401(k) Plan, we may elect to match a discretionary percentage of contributions. No such matching contributions have been made to the 401(k) Plan since its inception.

Employee Stock Purchase Plan

The ESPP permits our eligible employees to purchase shares of common stock, at semi-annual intervals, through periodic payroll deductions. Payroll deductions may not exceed 10% of the participant’s cash compensation subject to certain limitations, and the purchase price will not be less than 85% of the lower of the fair market value of the stock at either the beginning of the applicable Offering Period or the Purchase Date. Each Offering Period is twelve months, with new Offering Periods commencing every six months on the dates of February 1 and August 1 of each year. Each Offering Period consists of two (2) six month purchase periods (each a “Purchase Period”) during which payroll deductions of the participants are accumulated under the ESPP. The last business day of each Purchase Period is referred to as the “Purchase Date.” Purchase Dates are every six months on the dates of January 31 and July 31. Annually in January of each year, subject to Board discretion and certain limitations, shares reserved for the ESPP will automatically be increased by a number of shares equal to 1% of the total number of issued and outstanding shares of our common stock at the preceding year end. On January 31, 2012, July 31, 2012, January 31, 2013, July 31, 2013, January 31, 2014 and July 31, 2014 we issued 68,960, 89,114, 93,246, 106,415, 64,563 and 70,494, respectively, shares of common stock under the ESPP.

Equity Incentive Plans

In 2005, we adopted the 2005 Equity Incentive Plan, as amended (the “2005 Plan”), which replaced the 1999 Incentive Stock Plan and provides for the grant of incentive and nonstatutory stock options, restricted stock, stock bonuses, stock appreciation rights, and restricted stock units to employees, directors or consultants of the Company. Shares reserved include all shares that were available under the 1999 Incentive Stock Plan on the day it was terminated. Options generally vest over three or four years and expire ten years from the date of grant. In addition, incentive stock options may not be granted at a price less than the 100% of the fair market value on the date of grant. The term of the 2005 Plan is scheduled to end in March 2015. Annually in January of each year, subject to Board discretion and certain limitations, shares reserved for the 2005 Plan will automatically be increased by a number of shares equal to 3% of the total number of issued and outstanding shares of our common stock during the preceding year end.

A summary of our stock option activity, and related information for the year ended December 31, 2014 is as follows (in millions except weighted-average exercise price and weighted-average remaining contractual term):



	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at December 31, 2013	5.9		$	7.94
Exercised	(2.8	)	7.92
Forfeited	—		11.53
Outstanding at December 31, 2014	3.1		$	7.95	3.53	$	147.5
Exercisable at December 31, 2014	3.1		$	7.95	3.53	$	147.5

The total intrinsic value of options exercised as of the date of exercise and total fair value of options vested was as follows (in millions):



	Years Ended December 31,
	2014		2013		2012
Intrinsic value of options exercised	$	99.0	$	29.8	$	2.7
Fair value of options vested	$	0.4	$	1.3	$	3.7

We define in-the-money options at December 31, 2014 as options that had exercise prices that were lower than the $55.05 closing market price of our common stock at that date. The aggregate intrinsic value of options outstanding at December 31, 2014 is calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 3.1 million options that were in-the-money at that date. There were 3.1 million in-the-money options exercisable at December 31, 2014.

The following table sets forth a summary of our nonvested stock options and activity as of and for the year ended December 31, 2014:



	Shares		Weighted Average Grant Date Fair Value
	(in millions)
Nonvested at December 31, 2013	0.1		$	4.60
Vested	(0.1	)	4.60
Forfeited	—		—
Nonvested at December 31, 2014	—		$	—

Valuation and expense information

The following table summarizes share-based compensation expense related to employee stock options, restricted stock units and employee stock purchases for the years ended December 31, 2014, 2013 and 2012 were allocated as follows (in millions):



	Years Ended December 31,
	2014		2013		2012
Cost of sales	$	4.5	$	2.6	$	2.1
Research and development	17.0		8.5		6.2
Selling, general and administrative	28.5		13.5		10.1
Share-based compensation expense included in operating expenses	$	50.0	$	24.6	$	18.4

At December 31, 2014, unrecognized estimated compensation costs related to unvested restricted stock units totaled $105.1 million and are expected to be recognized through 2018.

We issued performance restricted stock units (the “Performance Awards”) in connection with our acquisition of SweetSpot in March 2012. The performance targets for these Performance Awards are tied to earnings before interest, taxes, depreciation and amortization (“EBITDA”) for fiscal years 2013 and 2014. We recognize expense for the Performance Awards when it is probable that the EBITDA targets will be met. The performance targets for fiscal 2014 and 2013 EBITDA were not achieved and as such no expense was recognized related to the Performance Awards for fiscal years 2014 and 2013.

We estimate the fair value of each option grant and ESPP purchase rights on the date of grant using the Black-Scholes option pricing model with the below assumptions.

Options:



	Years Ended December 31,
	2014	2013	2012
Risk free interest rate	n/a	n/a	1.2	%
Dividend yield	n/a	n/a	—	%
Expected volatility of the Company’s stock	n/a	n/a	0.70
Expected life (in years)	n/a	n/a	6.1

ESPP:



	Years Ended December 31,
	2014		2013		2012
Risk free interest rate	0.10 – 0.12		0.13 – 0.17		0.11 – 0.19
Dividend yield	—	%	—	%	—	%
Expected volatility of the Company’s stock	0.41 – 0.50		0.30 – 0.39		0.39 – 0.70
Expected life (in years)	1		1		1

Restricted Stock Units (RSUs)

RSU awards typically vest annually over three or four years, and vesting is subject to continued employment. The RSUs had a weighted-average grant date fair value of $46.19, $17.29 and $10.58 per share for the years ended December 31, 2014, 2013 and 2012, respectively. The total fair value of RSUs vested was $27.0 million, $17.5 million and $11.8 million for the years ended 2014, 2013 and 2012, respectively.

The following table sets forth a summary of our RSU activity as of and for the year ended December 31, 2014 (in millions except weighted average grant date fair value):



	Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Nonvested at December 31, 2013	3.6		$	15.13
Granted	2.6		46.19
Vested	(1.8	)	15.47
Forfeited	(0.2	)	28.10
Nonvested at December 31, 2014	4.2		$	33.35	$	233.7

Reserved Shares

We have reserved shares of common stock for future issuance as follows (in millions):



	December 31,
	2014	2013
Stock options and awards under our plans:
Stock options granted and outstanding	3.1	5.9
Unvested restricted stock units	4.2	3.6
Reserved for future grant	0.3	0.5
Employee Stock Purchase Plan	2.5	2.6
Total	10.1	12.6