3. SHARE-BASED COMPENSATION

Equity Compensation Plans

During fiscal year 2015, the Company granted equity compensation awards under the 2010 Equity Incentive Plan (the "2010 Plan") and the 2013 Elementum Plan (the "Elementum Plan"). The 2010 Plan is administered by Flextronics International Ltd., while the Elementum Plan is administered by Elementum SCM (Cayman) Limited ("Elementum"), a majority owned subsidiary of the Company.

The 2010 Equity Incentive Plan of Flextronics International Ltd.

As of March 31, 2015, the Company had approximately 34.6 million shares available for grant under the 2010 Plan. Options issued to employees under the 2010 Plan generally vest over four years and expire seven years from the date of grant. Options granted to non-employee directors expire five years from the date of grant.

The exercise price of options granted to employees is determined by the Company's Board of Directors or the Compensation Committee and may not be less than the closing price of the Company's ordinary shares on the date of grant.

The Company also grants share bonus awards under its equity compensation plan. Share bonus awards are rights to acquire a specified number of ordinary shares for no cash consideration in exchange for continued service with the Company. Share bonus awards generally vest in installments over a three to five year period and unvested share bonus awards are forfeited upon termination of employment. Vesting for certain share bonus awards is contingent upon both service and market conditions.

Share-Based Compensation Expense

The following table summarizes the Company's share-based compensation expense:

	Fiscal Year Ended March 31,
	2015		2014		2013
	(In thousands)
Cost of sales	$	7,503	$	6,540	$	5,163
Selling, general and administrative expenses		42,767		33,899		29,366

Total share-based compensation expense	$	50,270	$	40,439	$	34,529

As required by the authoritative guidance for stock-based compensation, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest. When estimating forfeitures, the Company considers voluntary termination behavior as well as an analysis of actual forfeitures.

As of March 31, 2015, the total unrecognized compensation cost related to unvested share options granted to employees under the Company's 2010 Plan was approximately $0.1 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted-average period of approximately 2.0 years and will be adjusted for estimated forfeitures. As of March 31, 2015, the total unrecognized compensation cost related to unvested share bonus awards granted to employees was approximately $90.2 million, net of estimated forfeitures. This cost will be amortized generally on a straight-line basis over a weighted-average period of approximately 2.5 years and will be adjusted for estimated forfeitures. Approximately $15.4 million of the unrecognized compensation cost, net of forfeitures, is related to share bonus awards granted to certain key employees whereby vesting is contingent on meeting a certain market condition.

Cash flows resulting from excess tax benefits (tax benefits related to the excess of proceeds from employee exercises of share options over the share-based compensation cost recognized for those options) are classified as financing cash flows. During fiscal years 2015, 2014 and 2013, the Company did not recognize any excess tax benefits as a financing cash inflow.

Determining Fair Value

Options

Valuation and Amortization Method—The Company estimates the fair value of share options granted under the 2010 Plan using the Black-Scholes valuation method and a single option award approach. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair market value of share bonus awards granted, other than those awards with a market condition, is the closing price of the Company's ordinary shares on the date of grant and is generally recognized as compensation expense on a straight-line basis over the respective vesting period.

Expected Term—The Company's expected term used in the Black-Scholes valuation method represents the period that the Company's share options are expected to be outstanding and is determined based on historical experience of similar awards, giving consideration to the contractual terms of the share options, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its share options.

Expected Volatility—The Company's expected volatility used in the Black-Scholes valuation method is derived from a combination of implied volatility related to publicly traded options to purchase Flextronics ordinary shares and historical variability in the Company's periodic share price.

Expected Dividend—The Company has never paid dividends on its ordinary shares and accordingly the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected term of the option.

There were no options granted under the 2010 Plan during fiscal year 2014. The fair value of the Company's share options granted to employees for fiscal years 2015 and 2013 was estimated using the following weighted-average assumptions:

	Fiscal Year Ended March 31,
	2015	2013
Expected term	6.3 years	4.1 years
Expected volatility	46.9%	46.9%
Expected dividends	0.0%	0.0%
Risk-free interest rate	2.3%	0.9%
Weighted-average fair value	$4.85	$2.48

Options granted during the 2015 and 2013 fiscal years had contractual lives of seven years.

Share bonus awards with service and market conditions

Valuation and Amortization Method—The Company estimates the fair value of share bonus awards granted under the 2010 Plan whereby vesting is contingent on meeting certain market conditions using Monte Carlo simulation. This fair value is then amortized on a straight-line basis over the vesting period, which is the service period.

Expected volatility of Flextronics—Volatility used in Monte Carlo simulation is derived from the historical volatility of Flextronics' stock price over a period equal to the service period of the share bonus awards granted. The service period is three years for those share bonus awards granted in fiscal years 2015, 2014 and 2013.

Average peer volatility—Volatility used in Monte Carlo simulation is derived from the historical volatilities of both the S&P 500 index and components of an extended Electronics Manufacturing Services ("EMS") group, comprised of global competitors of the Company within the same industry, for the share bonus awards granted in fiscal years 2015 and 2014, and historical volatilities of the S&P 500 index for the share bonus awards granted in fiscal year 2013 based on the various service periods.

Average Peer Correlation—Correlation coefficients were used to model the movement of Flextronics' stock price relative to both the S&P 500 index and peers in the extended EMS group for the share bonus awards granted in fiscal years 2015 and 2014, and relative to the S&P 500 index for the share bonus awards granted in fiscal year 2013.

Expected Dividend—The Company has never paid dividends on its ordinary shares and accordingly the dividend yield percentage is zero for all periods.

Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Monte Carlo simulation on the yield of zero-coupon U.S. Treasury bills, as of the measurement date.

The fair value of the Company's share-bonus awards, whereby vesting is contingent on meeting certain market conditions, for fiscal years 2015, 2014 and 2013 was estimated using the following weighted-average assumptions:

	Fiscal Year Ended March 31,
	2015			2014			2013
Expected volatility		29.4	%		35.9	%		41.7	%
Average peer volatility		25.9	%		35.7	%		19.2	%
Average peer correlation		0.6			0.4			0.7
Expected dividends		0.0	%		0.0	%		0.0	%
Risk-free interest rate		0.9	%		0.4	%		0.4	%

Share-Based Awards Activity

The following is a summary of option activity for the Company's 2010 Plan ("Price" reflects the weighted-average exercise price):

	Fiscal Year Ended March 31,
	2015					2014					2013
	Options			Price		Options			Price		Options			Price
Outstanding, beginning of fiscal year		23,612,872		$	8.57		34,405,564		$	8.29		43,933,660		$	7.78
Granted		15,000			11.11		—			—		19,000			6.57
Exercised		(3,600,900	)		6.53		(6,572,383	)		4.28		(5,398,331	)		4.12
Forfeited		(4,034,078	)		13.17		(4,220,309	)		12.93		(4,148,765	)		8.32

Outstanding, end of fiscal year		15,992,894		$	7.81		23,612,872		$	8.57		34,405,564		$	8.29


Options exercisable, end of fiscal year		15,959,173		$	7.81		23,373,101		$	8.58		33,662,480		$	8.31

The aggregate intrinsic value of options exercised (calculated as the difference between the exercise price of the underlying award and the price of the Company's ordinary shares determined as of the time of option exercise for options exercised in-the-money) under the Company's 2010 Plan was $16.3 million, $24.7 million and $13.0 million during fiscal years 2015, 2014 and 2013 respectively.

Cash received from option exercises was $23.5 million, $28.1 million and $22.3 million for fiscal years 2015, 2014 and 2013, respectively.

The following table presents the composition of options outstanding and exercisable as of March 31, 2015:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares Outstanding		Weighted Average Remaining Contractual Life (In Years)		Weighted Average Exercise Price		Number of Shares Exercisable		Weighted Average Exercise Price
$1.94 - $2.26		4,665,815		0.79	$	2.12		4,665,815	$	2.12
$3.39 - $5.75		2,236,960		1.36		5.56		2,233,938		5.56
$5.87 - $7.07		79,118		2.03		6.42		68,217		6.43
$7.08 - $10.59		4,357,646		0.42		10.34		4,349,848		10.35
$10.67 - $11.41		831,555		1.19		11.22		819,555		11.22
$11.53 - $13.98		3,786,800		0.22		12.45		3,786,800		12.45
$14.34 - $23.02		35,000		1.42		15.95		35,000		15.95

$1.94 - $23.02		15,992,894		0.66	$	7.81		15,959,173	$	7.81


Options vested and expected to vest		15,989,753		0.66	$	7.81

As of March 31, 2015, the aggregate intrinsic value for options outstanding, options vested and expected to vest (which includes adjustments for expected forfeitures), and options exercisable were $78.1 million, $78.1 million and $77.9 million, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's ordinary shares as of March 31, 2015 for the approximately 15.7 million options that were in-the-money at March 31, 2015. As of March 31, 2015, the weighted average remaining contractual life for options exercisable was 0.65 years.

The following table summarizes the Company's share bonus award activity ("Price" reflects the weighted-average grant-date fair value):

	Fiscal Year Ended March 31,
	2015					2014					2013
	Shares			Price		Shares			Price		Shares			Price
Unvested share bonus awards outstanding, beginning of fiscal year		21,848,120		$	7.32		21,807,069		$	6.80		15,965,268		$	6.91
Granted		6,963,125			11.75		8,978,941			8.07		9,582,867			6.74
Vested		(7,246,056	)		6.97		(5,481,153	)		6.66		(1,506,234	)		7.51
Forfeited		(2,571,937	)		7.70		(3,456,737	)		7.07		(2,234,832	)		6.86

Unvested share bonus awards outstanding, end of fiscal year		18,993,252		$	9.01		21,848,120		$	7.32		21,807,069		$	6.80

Of the 19.0 million unvested share bonus awards outstanding as of the fiscal year ended 2015, approximately 4.9 million represents the target amount of grants made to certain key employees whereby vesting is contingent on meeting certain market conditions summarized as follows:

	Targeted number of awards as of March 31, 2015 (in shares)					Range of shares that may be issued
			Average grant date fair value (per share)
										Assessment dates
Year of grant					Market condition	Minimum		Maximum		Assessment dates
Fiscal 2015		962,083	$	14.77	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against both the Standard and Poor's ("S&P") 500 Composite Index and an Extended Electronics Manufacturing Services ("EMS") Group Index.		—		1,924,166	May 2017
Fiscal 2014		1,932,000	$	9.36	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against both the Standard and Poor's ("S&P") 500 Composite Index and an Extended Electronics Manufacturing Services ("EMS") Group Index.		—		3,864,000	May 2016
Fiscal 2013		1,591,000	$	7.60	Vesting ranges from zero to 200% based on measurement of Flextronics' total shareholder return against the S&P 500 Composite Index.		—		3,182,000	May 2015
Fiscal 2012		380,000	$	7.83	Vesting ranges from zero to 150% based on measurement of Flextronics' total shareholder return against the S&P 500 Composite Index.		—		570,000	June 2015 (50%)
Totals		4,865,083							9,540,166

In accordance with the accounting guidance, the Company will continue to recognize share-based compensation expense for these awards with market conditions regardless of whether such awards will ultimately vest. During fiscal year 2015, 0.3 million shares vested in connection with the remaining number of share bonus awards with market conditions granted in fiscal year 2011, and 0.4 million shares vested in connection with half of the share bonus awards with market conditions granted in fiscal year 2012.

The total intrinsic value of share bonus awards vested under the Company's 2010 Plan was $79.0 million, $42.4 million and $9.7 million during fiscal years 2015, 2014 and 2013, respectively, based on the closing price of the Company's ordinary shares on the date vested.

The 2013 Equity Incentive Plan of Elementum SCM (Cayman) Ltd.

As of March 31, 2015 Elementum had approximately 5.0 million shares available for future grants under the 2013 Elementum Plan. Options issued to employees under this Plan vest over a period of four years and expire ten years from the grant date. As of March 31, 2015 there were 16.0 million of options outstanding at a weighted average exercise price of $0.27 per option. Total unrecognized compensation expenses relating to stock options granted to certain employees under the Elementum Plan as of March 31, 2015 is $2.1 million, and will be recognized over a weighted average period of 3.29 years.