STOCK-BASED COMPENSATION

Summary of Restricted Stock Units

Restricted stock unit activity for the six months ended June 3, 2016 and the fiscal year ended November 27, 2015 was as follows (in thousands):



	2016		2015
Beginning outstanding balance	10,069		13,564
Awarded	3,626		4,012
Released	(4,712	)	(6,561	)
Forfeited	(466	)	(946	)
Ending outstanding balance	8,517		10,069

Information regarding restricted stock units outstanding at June 3, 2016 and May 29, 2015 is summarized below:



	Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value^(*) (millions)
2016
Restricted stock units outstanding	8,517	1.37	$	840.6
Restricted stock units vested and expected to vest	7,630	1.31	$	741.3
2015
Restricted stock units outstanding	10,505	1.23	$	830.8
Restricted stock units vested and expected to vest	9,405	1.16	$	734.2

^{_________________________________________}


^(*)	The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of June 3, 2016 and May 29, 2015 were $98.70 and $79.09, respectively.

Summary of Performance Shares

Our 2016, 2015 and 2014 Performance Share Programs aim to help focus key employees on building stockholder value, provide significant award potential for achieving outstanding Company performance and enhance the ability of the Company to attract and retain highly talented and competent individuals. The Executive Compensation Committee of our Board of Directors approves the terms of each of our Performance Share Programs, including the award calculation methodology, under the terms of our 2003 Equity Incentive Plan. Shares may be earned based on the achievement of an objective relative total stockholder return measured over a three-year performance period. Performance share awards will be awarded and fully vest upon the Executive Compensation Committee's certification of the level of achievement following the three-year anniversary of each grant date. Program participants generally have the ability to receive up to 200% of the target number of shares originally granted.

In the first quarter of fiscal 2016, the Executive Compensation Committee approved the 2016 Performance Share Program, the terms of which are similar to prior year performance share programs as discussed above.

In the first quarter of fiscal 2016, the Executive Compensation Committee also certified the actual performance achievement of participants in the 2013 Performance Share Program. Actual performance resulted in participants achieving 198% of target or approximately 1.4 million shares. The shares granted and achieved under the 2013 Performance Share Program fully vested on the third-year anniversary of the grant on January 24, 2016, if not forfeited. As of June 3, 2016, the shares awarded under our 2016, 2015 and 2014 Performance Share Programs are yet to be achieved.

The following table sets forth the summary of performance share activity under our Performance Share Programs for the six months ended June 3, 2016 and the fiscal year ended November 27, 2015 (in thousands):



	2016					2015
	Shares Granted			Maximum Shares Eligible to Receive		Shares Granted		Maximum Shares Eligible to Receive
Beginning outstanding balance	1,940			3,881		1,517		3,034
Achieved	(1,373	)		(1,387	)	—		—
Awarded	1,206		⁽¹⁾	1,053		671		1,342
Forfeited	(117	)		(234	)	(248	)	(495	)
Ending outstanding balance	1,656			3,313		1,940		3,881

^{_________________________________________}


⁽¹⁾	Included in the 1.2 million shares awarded during the six months ended June 3, 2016 were 0.7 million shares awarded for the final achievement of the 2013 Performance Share program. The remaining awarded shares were for the 2016 Performance Share Program.

Summary of Employee Stock Purchase Plan Shares

There were no stock purchases under the Employee Stock Purchase Plan (“ESPP”) during the three months ended June 3, 2016 and May 29, 2015. The expected life of the ESPP shares is the average of the remaining purchase periods under each offering period. The assumptions used to value employee stock purchase rights during the six months ended June 3, 2016 and May 29, 2015 were as follows:



	2016	2015
Expected life (in years)	0.5 - 2.0	0.5 - 2.0
Volatility	27% - 29%	27% - 30%
Risk free interest rate	0.49% - 1.06%	0.12% - 0.67%

Employees purchased 0.7 million shares at an average price of $58.79 and 0.7 million shares at an average price of $50.31 for the six months ended June 3, 2016 and May 29, 2015, respectively. The intrinsic value of shares purchased during the six months ended June 3, 2016 and May 29, 2015 was $23.7 million and $16.0 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares.

Summary of Stock Options

The Executive Compensation Committee of Adobe’s Board of Directors eliminated the use of stock option grants for all employees and the Board of Directors effective fiscal 2012 and fiscal 2014, respectively. As of June 3, 2016 and November 27, 2015, we had 0.9 million and 1.3 million stock options outstanding, respectively.

Compensation Costs

As of June 3, 2016, there was $565.8 million of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards which will be recognized over a weighted average period of 2.1 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

Total stock-based compensation costs included in our Condensed Consolidated Statements of Income for the three months ended June 3, 2016 and May 29, 2015 were as follows (in thousands):



	2016				2015
Income Statement Classifications	Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards
Cost of revenue—subscription	$	413	$	1,758	$	371	$	1,780
Cost of revenue—services and support	1,433		1,738		1,404		1,429
Research and development	3,751		25,408		3,639		25,292
Sales and marketing	4,463		27,969		4,630		28,255
General and administrative	1,214		17,205		1,133		17,191
Total	$	11,274	$	74,078	$	11,177	$	73,947

Total stock-based compensation costs included in our Condensed Consolidated Statements of Income for six months ended June 3, 2016 and May 29, 2015 were as follows (in thousands):



	2016				2015
Income Statement Classifications	Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock and Performance Share Awards
Cost of revenue—subscription	$	786	$	3,561	$	812	$	3,309
Cost of revenue—services and support	2,866		3,633		2,620		3,286
Research and development	7,625		54,892		7,695		51,997
Sales and marketing	9,013		57,325		9,228		55,540
General and administrative	2,447		35,952		2,596		33,952
Total	$	22,737	$	155,363	$	22,951	$	148,084