Stock-Based Employee Compensation

Equity Incentive Programs

The Company currently issues awards under two equity-based plans in order to provide additional incentive and retention to directors and employees who are considered to be essential to the long-range success of the Company. These plans are further described below.

2004 Equity Plan (2004 Plan)

In September 2004, the Company’s stockholders approved the 2004 Plan. On July 21, 2010, the Board of Directors of the Company approved an amendment to the Company’s 2004 Plan to increase the number of shares of common stock reserved for issuance thereunder from 28,500,000 shares to 36,800,000 shares (an increase of 8,300,000 shares), provided, however, that the aggregate number of common shares available for issuance under the 2004 Plan is reduced by 1.74 shares for each common share delivered in settlement of any full value award, which are awards other than stock options and stock appreciation rights, that are granted under the 2004 Plan on or after September 23, 2010. On September 23, 2010, the stockholders of the Company approved the proposed amendment described above, which also includes certain other changes to the 2004 Plan, including an extension of the term of the 2004 Plan. Options granted by the Company under the 2004 Plan generally expire seven years from the date of grant and generally vest over a four-year period from the date of grant, with one-quarter of the shares of common stock vesting on the 1 year anniversary of the grant date and the remaining shares vesting monthly for the 36 months thereafter. The exercise price of the options granted by the Company under the 2004 Plan shall not be less than 100% of the fair market value for a common share subject to such option on the date the option is granted. Full value awards made under the 2004 Plan shall become vested over a period of not less than 3 years (or, if vesting is performance-based, over a period of not less than one year) following the date such award is made; provided, however, that full value awards that result in the issuance of an aggregate of up to 5% of common stock available under the 2004 Plan may be granted to any one or more participants without respect to such minimum vesting provisions. As of March 29, 2015, there were 11.1 million shares available for future grant under the 2004 Plan.

Compensation Expense

The following table summarizes stock-based compensation expense by line items appearing in the Company’s Consolidated Statement of Operations:



	Fiscal Year Ended
(in thousands)	March 29, 2015			March 30, 2014		March 31, 2013
Cost of revenue	$	1,936		$	1,189	$	1,113
Research and development	9,813			5,601		6,692
Selling, general and administrative	10,704			5,887		5,250
Discontinued operations	(194		)	675		217
Total stock-based compensation expense	$	22,259		$	13,352	$	13,272

The amount of stock-based compensation expense that was capitalized during the periods presented above was immaterial. Stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest. The authoritative guidance for stock-based compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company attributes the value of stock-based compensation to expense on an accelerated method.

Valuation Assumptions

The Company uses the Black-Scholes option-pricing model as its method of valuation for stock-based awards. The Company’s determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, as well as the expected term of the awards.



	Fiscal Year Ended
	March 29, 2015			March 30, 2014			March 31, 2013
Stock option plans:
Expected term (in years)	4.00			4.60			4.64
Risk-free interest rate	1.25		%	0.95		%	0.73		%
Volatility	38.7		%	40.1		%	45.0		%
Dividend yield	—		%	—		%	—		%
Weighted-average grant-date fair value	$	3.84		$	2.99		$	2.18
ESPP:
Expected term (in years)	0.25			0.25			0.25
Risk-free interest rate	0.04		%	0.06		%	0.08		%
Volatility	40.5		%	35.0		%	35.0		%
Dividend yield	—		%	—		%	—		%
Weighted-average grant-date fair value	$	3.53		$	1.89		$	1.42

The following is a summary of the Company's stock option activity and related weighted average exercise prices for each category:



	Fiscal 2015
(shares in thousands)	Shares		Price
Beginning stock options outstanding	5,602		$	7.21
Granted	411		12.10
Exercised (1)	(1,843	)	6.96
Canceled	(490	)	8.48
Ending stock options outstanding	3,680		$	7.71
Ending stock options exercisable	2,369		$	6.92


(1)	Upon exercise, the Company issues new shares of common stock.

The following is a summary of information about stock options outstanding at March 29, 2015:



	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number Outstanding (in thousands)	Weighted-Average Remaining Contractual Life (in years)	Weighted-Average Exercise Price	Number Exercisable (in thousands)	Weighted-Average Exercise Price
4.95-5.33	393,066	2.79	$5.22	310,388	$5.20
5.40-5.75	409,984	2.62	5.72	384,604	5.73
5.77-5.77	619,416	4.10	5.77	372,730	5.77
5.79-6.79	390,446	2.21	6.10	366,028	6.09
6.80-7.24	89,263	3.16	6.97	73,309	6.97
7.67-7.67	423,688	5.13	7.67	164,526	7.67
7.81-7.92	18,687	2.99	7.85	17,382	7.84
8.49-8.49	567,005	3.12	8.49	526,265	8.49
9.39-11.79	403,000	5.87	11.69	117,583	11.66
12.16-20.56	365,090	5.54	12.27	36,225	12.51
	3,679,645	3.87	$7.71	2,369,040	$6.92

As of March 29, 2015, the weighted-average remaining contractual life of stock options outstanding was 3.87 years and the aggregate intrinsic value was $44.4 million. The weighted-average remaining contractual life of stock options exercisable was 3.15 years and the aggregate intrinsic value was $30.5 million. Unrecognized compensation cost related to non-vested stock options, net of estimated forfeitures, was $1.2 million and will be recognized over a weighted-average period of 1.03 years.

As of March 29, 2015, stock options vested and expected to vest totaled approximately 3.5 million with a weighted-average exercise price of $7.57 and a weighted-average remaining contractual life of 3.76 years. The aggregate intrinsic value as of March 29, 2015 was approximately $42.2 million.

Restricted Stock Units

Restricted stock units granted by the Company under the 2004 Plan generally vest over at least a three year period from the grant date with one-third of restricted stock units vesting on each one-year anniversary. As of March 29, 2015, 3.5 million restricted stock unit awards were outstanding under the 2004 Plan.

The following table summarizes the Company’s restricted stock unit activity and related weighted-average exercise prices for each category:



	Fiscal 2015
(shares in thousands)	Shares		Weighted- Average Grant Date Fair Value Per Share
Beginning RSUs outstanding	2,924		$	7.43
Granted	2,001		13.20
Released	(988	)	7.43
Forfeited	(480	)	8.80
Ending RSUs outstanding	3,457		$	10.58

As of March 29, 2015, restricted stock units expected to vest totaled approximately 2.8 million with a weighted-average remaining contract life of 1.22 years. The aggregate intrinsic value was approximately $56.3 million.

Performance-Based Stock Units

In fiscal 2013, the Compensation Committee (the Committee) of the Board of Directors of IDT approved the Company’s Executive Retention Plan (the Retention Plan), in which each of the President and Chief Executive Officer’s direct reports are eligible to participate. The Retention Plan provides for the grant of performance-based stock units under the 2004 Plan which vest and convert into between zero and one and a half shares of the Company's common stock based on the level of achievement of pre-established performance goals during a specified performance period. The initial performance period under the Retention Plan is the Company’s fiscal year 2014 for which performance goals related to the Company’s annual non-GAAP operating margin and revenue growth relative to a peer group of companies, weighted 60% and 40%, respectively, were established by the Committee. Any shares of Company common stock earned by performance stock unit holders will vest and be issued in two equal installments, the first on the date the Committee determines the achievement of the performance goals and the second on the first anniversary of such determination. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense for the Retention Plan.

In addition, the Committee approved the Company's Key Talent Incentive Plan (Incentive Plan). The Incentive Plan provides for the grant of performance-based stock units under the 2004 Plan which vest and convert into one share of the Company's common stock based on the level of achievement of pre-established performance goals during a specified performance period. The initial performance period under the Incentive Plan is the Company's fourth quarter of fiscal 2013 through the fourth quarter of fiscal 2016 for which performance goals relate to cumulative revenue targets for a specific product group. Any shares of Company common stock earned by performance stock unit holders will vest and be issued quarterly based on the achievement of the performance goals. Management evaluates, on a quarterly basis, the likelihood of the Company meeting its performance metrics in determining stock-based compensation expense for the Incentive Plan.

The following table summarizes the Company’s performance stock unit activity and related weighted-average exercise prices for each category:



	Fiscal 2015
(shares in thousands)	Shares		Weighted- Average Grant Date Fair Value Per Share
Beginning PSUs outstanding	804		$	7.79
Granted	105		9.86
Released	(238	)	8.14
Forfeited	(154	)	7.80
Ending PSUs outstanding	517		$	8.06

As of March 29, 2015, performance stock units expected to vest totaled approximately 0.4 million with a weighted-average remaining contract life of 0.69 years. The aggregate intrinsic value was approximately $8.4 million.

Market-Based Stock Units

In June 2014, under the 2004 Plan, the Company granted approximately 0.5 million shares of restricted stock units with a market-based condition to a group of executive-level employees. These equity awards vest and convert into shares of the Company’s common stock based on the achievement of the Company’s relative total shareholder return over the performance period of 2 years. The earned market-based stock units will vest in two equal installments, with the first installment of vesting to occur on June 15, 2016, and the second on June 15, 2017.

The fair value of each market-based stock unit award was estimated on the date of grant using a Monte Carlo simulation model that uses the assumptions noted in the table below. The Company uses historical data to estimate employee termination within the valuation model. The expected term of 1.8 years was derived from the output of the valuation model and represents the period of time that restricted stock units granted are expected to be outstanding.

The following weighted average assumptions were used to calculate the fair value of the market-based equity award using a Monte Carlo simulation model:



	June 15, 2014
Estimated fair value	$	21.00
Expected volatility	34.6		%
Expected term (in years)	1.80
Risk-free interest rate	0.38		%
Dividend yield	—		%

As of March 29, 2015, the total market-based stock units outstanding was approximately 0.5 million.

As of March 29, 2015, market-based stock units vested and expected to vest totaled approximately 0.4 million with a weighted-average remaining contract life of 1.67 years. The aggregate intrinsic value was approximately 8.3 million.

As of March 29, 2015, the unrecognized compensation cost related to market-based stock units granted under the Company’s equity incentive plans was approximately 5.9 million, net of estimated forfeitures, and is expected to be recognized over a weighted-average period of 1.71 years.

2009 Employee Stock Purchase Plan (2009 ESPP)

On June 18, 2009, the Board approved implementation of the 2009 Employee Stock Purchase Plan (2009 ESPP) and authorized the reservation and issuance of up to 9.0 million shares of the Company’s common stock, subject to stockholder approval. On September 17, 2009, the Company’s stockholders approved the plan at the 2009 Annual Meeting of Stockholders. The 2009 ESPP is intended to be implemented in successive quarterly purchase periods commencing on the first day of each fiscal quarter of the Company. In order to maintain its qualified status under Section 423 of the Internal Revenue Code, the 2009 ESPP imposes certain restrictions, including the limitation that no employee is permitted to participate in the 2009 ESPP if the rights of such employee to purchase common stock of the Company under the 2009 ESPP and all similar purchase plans of the Company or its subsidiaries would accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined at the time the right is granted) for each calendar year. At the 2012 annual meeting of stockholders on September 13, 2012, the Company's stockholders approved an additional 5.0 million. The number of shares of common stock reserved for issuance thereunder increased from 9.0 million shares to 14.0 million shares.

Activity under the Company’s ESPP is summarized in the following table:



(in thousands, except per share amounts)	Fiscal 2015		Fiscal 2014		Fiscal 2013
Number of shares issued	641		1,206		1,679
Average issuance price	$	12.89	$	7.23	$	5.13
Number of shares available at year-end	4,378		5,019		1,226