STOCK-BASED COMPENSATION

Summary of Restricted Stock Units

Restricted stock unit activity for the three months ended March 3, 2017 and the fiscal year ended December 2, 2016 was as follows (in thousands):



	2017		2016
Beginning outstanding balance	8,316		10,069
Awarded	3,909		4,440
Released	(2,787	)	(5,471	)
Forfeited	(211	)	(722	)
Increase due to acquisition	595		—
Ending outstanding balance	9,822		8,316

Information regarding restricted stock units outstanding at March 3, 2017 and March 4, 2016 is summarized below:



	Number of Shares (thousands)	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value^(*) (millions)
2017
Restricted stock units outstanding	9,822	1.59	$	1,002.3
Restricted stock units vested and expected to vest	8,646	1.53	$	882.2
2016
Restricted stock units outstanding	8,851	1.52	$	762.7
Restricted stock units vested and expected to vest	7,716	1.45	$	654.2

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^(*)	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 March 3, 2017 and March 4, 2016 were $120.04 and $86.18, respectively.

Summary of Performance Shares

Our 2017, 2016 and 2015 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 2017, the Executive Compensation Committee approved the 2017 Performance Share Program, the terms of which are similar to prior year performance share programs as discussed above.

In the first quarter of fiscal 2017, the Executive Compensation Committee also certified the actual performance achievement of participants in the 2014 Performance Share Program. Actual performance resulted in participants achieving 198% of target or approximately 1.1 million shares. The shares granted and achieved under the 2014 Performance Share Program fully vested on the three-year anniversary of the grant on January 24, 2017, if not forfeited.

In the first quarter of fiscal 2016, the Executive Compensation Committee 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 three-year anniversary of the grant on January 24, 2016, if not forfeited.

As of March 3, 2017, the shares awarded under our 2017, 2016 and 2015 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 three months ended March 3, 2017 and the fiscal year ended December 2, 2016 (in thousands):



	2017						2016
	Shares Granted				Maximum Shares Eligible to Receive		Shares Granted				Maximum Shares Eligible to Receive
Beginning outstanding balance	1,630				3,261		1,940				3,881
Awarded	1,082		⁽¹	⁾	1,040		1,206		⁽²	⁾	1,053
Achieved	(1,135	)			(1,147	)	(1,373	)			(1,387	)
Forfeited	(37	)			(74	)	(143	)			(286	)
Ending outstanding balance	1,540				3,080		1,630				3,261

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⁽¹⁾	Included in the 1.1 million shares awarded during the three months ended March 3, 2017 were 0.6 million shares awarded for the final achievement of the 2014 Performance Share program. The remaining awarded shares were for the 2017 Performance Share Program.


⁽²⁾	Included in the 1.2 million shares awarded during the fiscal year ended December 2, 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

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 three months ended March 3, 2017 and March 4, 2016 were as follows:



	Three Months
	2017	2016
Expected life (in years)	0.5 - 2.0	0.5 - 2.0
Volatility	22% - 25%	27% - 29%
Risk free interest rate	0.62% - 1.2%	0.49% - 1.06%

Employees purchased 0.7 million shares at an average price of $71.72 and 0.7 million shares at an average price of $58.79 for the three months ended March 3, 2017 and March 4, 2016, respectively. The intrinsic value of shares purchased during the three months ended March 3, 2017 and March 4, 2016 was $20.4 million and $23.7 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 March 3, 2017 and December 2, 2016, we had 0.5 million and 0.6 million stock options outstanding, respectively.

Compensation Costs

As of March 3, 2017, there was $887.4 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 2.3 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 March 3, 2017 and March 4, 2016 were as follows (in thousands):



	2017				2016
Income Statement Classifications	Option Grants and Stock Purchase Rights		Restricted Stock Units and Performance Share Awards		Option Grants and Stock Purchase Rights		Restricted Stock Units and Performance Share Awards
Cost of revenue—subscription	$	393	$	2,161	$	373	$	1,803
Cost of revenue—services and support	1,723		3,065		1,433		1,895
Research and development	4,032		33,094		3,874		29,484
Sales and marketing	4,388		32,465		4,550		29,356
General and administrative	1,230		18,316		1,233		18,747
Total	$	11,766	$	89,101	$	11,463	$	81,285