Share-Based Compensation and Equity

Stock Option and Equity Plans

As of the end of 2015, we had five fixed stock option and equity plans in effect for associates and directors. This includes one plan from which we could issue grants, the Cerner Corporation 2011 Omnibus Equity Incentive Plan (the Omnibus Plan); and four plans from which no new grants are permitted, but some awards remain outstanding (Plans D, E, F, and G).

Awards under the Omnibus Plan may consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, performance grants and bonus shares. At the end of 2015, 20.1 million shares remain available for awards. Stock options granted under the Omnibus Plan are exercisable at a price not less than fair market value on the date of grant. Stock options under the Omnibus Plan typically vest over a period of five years and are exercisable for periods of up to 10 years.

Stock Options

The fair market value of each stock option award granted in 2015 is estimated on the date of grant using the Black-Scholes-Merton (BSM) pricing model. The pricing model requires the use of the following estimates and assumptions:


•	Expected volatilities under the BSM model are based on an equal weighting of implied volatilities from traded options on our common shares and historical volatility.

•

The expected term of stock options granted is the period of time for which an option is expected to be outstanding beginning on the grant date. Our calculation of expected term takes into account the contractual term of the option, as well as the effects of employees' historical exercise patterns; groups of associates (executives and non-executives) that have similar historical behavior are considered separately for valuation purposes.


•	The risk-free rate is based on the zero-coupon U.S. Treasury bond with a term consistent with the expected term of the awards.

The weighted-average assumptions used to estimate the fair market value of stock options were as follows:



	For the Years Ended
	2015		2014		2013

Expected volatility (%)	27.6	%	29.7	%	30.5	%
Expected term (yrs)	7		9		9
Risk-free rate (%)	1.8	%	2.9	%	1.9	%

Stock option activity for 2015 was as follows:



(In thousands, except per share data)	Number of Shares		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Yrs)
Outstanding at beginning of year	24,629		$	27.00
Granted	3,678		67.07
Exercised	(3,723	)	16.15
Forfeited and expired	(317	)	48.42
Outstanding at end of year	24,267		34.46		$	649,227	5.96

Exercisable at end of year	13,694		$	19.42	$	557,957	4.29



	For the Years Ended
(In thousands, except for grant date fair values)	2015		2014		2013

Weighted-average grant date fair values	$	21.51	$	22.59	$	19.57

Total intrinsic value of options exercised	$	196,127	$	124,828	$	118,051

Cash received from exercise of stock options	51,475		31,879		31,403

Tax benefit realized upon exercise of stock options	66,868		44,029		43,523

As of the end of 2015, there was $154 million of total unrecognized compensation cost related to stock options granted under all plans. That cost is expected to be recognized over a weighted-average period of 3.16 years.

Non-vested Shares

Non-vested shares are valued at fair market value on the date of grant and will vest provided the recipient has continuously served on the Board of Directors through such vesting date or, in the case of an associate, provided that performance measures are attained. The expense associated with these grants is recognized over the period from the date of grant to the vesting date, when achievement of the performance condition is deemed probable.

Non-vested share activity for 2015 was as follows:



(In thousands, except per share data)	Number of Shares		Weighted-Average Grant Date Fair Value

Outstanding at beginning of year	506		$	46.21
Granted	315		68.57
Vested	(206	)	45.60
Forfeited	(58	)	43.57

Outstanding at end of year	557		$	59.42



	For the Years Ended
(In thousands, except for grant date fair values)	2015		2014		2013

Weighted average grant date fair values for shares granted during the year	$	68.57	$	55.27	$	46.66

Total fair value of shares vested during the year	$	13,730	$	11,294	$	13,649

As of the end of 2015, there was $16 million of total unrecognized compensation cost related to non-vested share awards granted under all plans. That cost is expected to be recognized over a weighted-average period of 2.01 years.

Associate Stock Purchase Plan

We established an Associate Stock Purchase Plan (ASPP) in 2001, which qualifies under Section 423 of the Internal Revenue Code. Each individual employed by us and associates of our U.S. based subsidiaries, except as provided below, are eligible to participate in the ASPP (Participants). The following individuals are excluded from participation: (a) persons who, as of the beginning of a purchase period under the Plan, have been continuously employed by us or our domestic subsidiaries for less than two weeks; (b) persons who, as of the beginning of a purchase period, own directly or indirectly, or hold options or rights to acquire under any agreement or Company plan, an aggregate of 5% or more of the total combined voting power or value of all outstanding shares of all classes of Company common stock; and, (c) persons who are customarily employed by us for less than 20 hours per week or for less than five months in any calendar year. Participants may elect to make contributions from 1% to 20% of compensation to the ASPP, subject to annual limitations determined by the Internal Revenue Service. Participants may purchase Company common stock at a 15% discount on the last business day of the option period. The purchase of Company common stock is made through the ASPP on the open market and subsequently reissued to Participants. The difference between the open market purchase and the Participant’s purchase price is recognized as compensation expense, as such difference is paid by Cerner, in cash.

Share Based Compensation Cost

Our stock option and non-vested share awards qualify for equity classification. The costs of our ASPP, along with participant contributions, are recorded as a liability until open market purchases are completed. The amounts recognized in the consolidated statements of operations with respect to stock options, non-vested shares and ASPP are as follows:



	For the Years Ended
(In thousands)	2015			2014			2013

Stock option and non-vested share compensation expense	$	70,121		$	59,292		$	46,295
Associate stock purchase plan expense	5,393			4,603			3,704
Amounts capitalized in software development costs, net of amortization	(588		)	(930		)	(1,045		)

Amounts charged against earnings, before income tax benefit	$	74,926		$	62,965		$	48,954

Amount of related income tax benefit recognized in earnings	$	23,435		$	22,101		$	18,607

Preferred Stock

As of the end of 2015 and 2014, we had 1.0 million shares of authorized but unissued preferred stock, $0.01 par value.

Treasury Stock

In September 2015, our Board of Directors authorized a repurchase program that allowed the Company to repurchase shares of our common stock up to $245 million, excluding transaction costs. During 2015, we repurchased 4.1 million shares for total consideration of $245 million under the program. These shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. This program is now complete.

In December of 2013, our Board of Directors authorized a share repurchase under which the Company was authorized to repurchase common stock in an amount up to $217 million. In May 2014, our Board of Directors approved an amendment to the repurchase program that was authorized in December 2013. Under the amendment, the Company was authorized to repurchase shares of our common stock up to an additional $100 million, for an aggregate of $317 million, excluding transaction costs. Under this program, we repurchased 1.6 million shares for total consideration of $100 million, and 4.1 million shares for total consideration of $217 million, in 2015 and 2014, respectively. These shares were recorded as treasury stock and accounted for under the cost method. No repurchased shares have been retired. This program is now complete.

In December 2012, our Board of Directors authorized a repurchase program that allowed the Company to repurchase shares of our common stock of up to $170 million, excluding transaction costs. During 2013, we repurchased 3.6 million shares for total consideration of $170 million. All of the repurchased shares at the time of our June 2013 stock split were utilized to settle a portion of the stock split distribution. This program is now complete.