Note 12: Employee Benefit Plans

Equity Incentive Plans

As of December 31, 2017, we had outstanding equity awards under our 2017 Equity Incentive Plan and our 2009 Stock Plan. No awards may be granted under our 2009 Stock Plan after June 7, 2017. Our primary equity incentive plans are summarized as follows:

2017 Equity Incentive Plan

Our stockholders approved the 2017 Equity Incentive Plan (“2017 Plan”) on June 7, 2017, which includes:

•

1,200,000 shares of our common stock reserved for issuance pursuant to such plan;

•

1,593,660 common stock shares that were available for future grants under the 2009 Equity Incentive Award Plan (“Prior Plan”) immediately prior to termination of authority to grant new awards under the Prior Plan on June 7, 2017;

•

shares subject to stock options granted under the Prior Plan and outstanding as of June 7, 2017, which expire, or for any reason are cancelled or terminated, after that date without being exercised; and

•

shares subject to restricted stock unit awards granted under the 2009 Plan that are outstanding and unvested as of June 7, 2017 which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested.

The 2017 Plan provides for grants of stock options (both incentive and nonqualified stock options), restricted stock, stock units, stock bonuses, performance stock, stock appreciation rights, performance stock units, phantom stock, dividend equivalent rights or cash awards. Options and awards generally vest over a period of one to four years from the date of grant and generally expire seven to ten years from the date of the grant. The terms of the 2017 Plan provide that an option price shall not be less than 100% of fair value on the date of the grant. Our board of directors may grant a stock bonus or stock unit award under the 2017 Plan in lieu of all or a portion of any cash bonus that a participant would have otherwise received for the related performance period.

The shares of common stock covered by the 2017 Plan may be treasury shares, authorized but unissued shares, or shares purchased in the open market. If an award under the 2017 Plan is forfeited (including a reimbursement of a non-vested award upon a participant’s termination of employment at a price equal to the par value of the common stock subject to the award) or expired, any shares of common stock subject to the award may be used again for new grants under the 2017 Plan.

The 2017 Plan is administered by the Compensation Committee of the Board of Directors (“Committee”). The Committee has the exclusive authority to administer the 2017 Plan, including the power to (i) designate participants under the 2017 Plan, (ii) determine the types of awards granted to participants under the 2017 Plan, the number of such awards, and the number of shares of our common stock that is subject to such awards, (iii) determine and interpret the terms and conditions of any awards under the 2017 Plan, including the vesting schedule, exercise price, whether to settle or accept the payment of any exercise price, in cash, common stock, other awards, or other property, and whether an award may be cancelled, forfeited, or surrendered, (iv) prescribe the form of each award agreement, and (v) adopt rules for the administration, interpretation, and application of the 2017 Plan.

Persons eligible to participate in the 2017 Plan include all of our employees, directors, and consultants, as determined by the Committee. As of December 31, 2017, approximately 3,900 employees and consultants and 5 non-employee directors were eligible to participate in the 2017 Plan.

There were 1.0 million shares outstanding and 1.9 million shares available for grant under the 2017 Plan as of December 31, 2017.

2009 Stock Plan

With the adoption of the 2017 Plan, no additional awards may be granted under the 2009 Stock Plan (“2009 Plan”).

The 2009 Plan provided for grants of stock options (both incentive and nonqualified stock options), restricted stock awards, stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, RSUs, and performance-based awards. Options and awards generally vest over a period of one to four years from the date of grant and generally expire seven to ten years from the date of the grant. The terms of the 2009 Plan provide that an option price shall not be less than 100% of fair value on the date of the grant. Our board of directors could grant a stock bonus or stock unit award under the 2009 Plan in lieu of all or a portion of any cash bonus that a participant would have otherwise received for the related performance period.

The shares of common stock covered by the 2009 Plan may be treasury shares, authorized but unissued shares, or shares purchased in the open market. If an award under the 2009 Plan is forfeited, terminated, cancelled, or otherwise reacquired, any shares of common stock subject to the award may be used again for new grants under the 2017 Plan.

There were 1.3, 2.4, and 2.3 million shares outstanding under the 2009 Plan as of December 31, 2017, 2016, and 2015, respectively.

Amended and Restated 2000 Employee Stock Purchase Plan

As most recently amended on June 4, 2013, our stockholders approved the Amended and Restated 2000 Employee Stock Purchase Plan that increased the number of shares authorized for issuance pursuant to such plan by 2 million shares. The share increase was intended to ensure that we continue to have a sufficient reserve of common stock available under the ESPP to provide our eligible employees with the opportunity to acquire our common stock through participation in a payroll deduction-based ESPP designed to operate in compliance with Section 423 of the IRC. The ESPP does not provide for an automatic increase in the number of shares reserved for issuance under the ESPP.

The ESPP is qualified under Section 423 of the IRC. Eligible employees may contribute from one to ten percent of their base compensation. Employees are not able to purchase more than the number of shares having a value greater than $25,000 in any calendar year, as measured at the beginning of the offering period under the ESPP. The purchase price shall be the lesser of 85% of the fair value of the stock, either on the offering date or on the purchase date. The offering period shall not exceed 27 months beginning with the offering date. The ESPP provides for offerings of four consecutive, overlapping six-month offering periods, with a new offering period commencing on the first trading day on or after February 1 and August 1 of each year.

There were 0.3 million shares issued under the ESPP at an average purchase price of $35.18, $32.88, and $31.66 during each of the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017, there was $1.9 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP, which is expected to be recognized over a period of 1.8 years. At December 31, 2017, 2016, and 2015, there were 0.9, 1.2, and 1.5 million shares, respectively, of our common stock reserved for issuance under the ESPP.

Employee 401(k) Plan

We sponsor a 401(k) Savings Plan (“401(k) Plan”) that provides retirement and incidental benefits for our U.S. employees. Employees may contribute from 1% to 75% of their annual compensation to the 401(k) Plan, limited to a maximum annual amount as set periodically by the IRS. We match 50% of U.S. employee contributions, up to a maximum of the first 4% of the employee’s compensation contributed to the plan, subject to IRS limitations. All matching contributions vest over four years starting with the hire date of the individual employee. Our matching contributions to the 401(k) Plan totaled $2.3, $2.2, and $2.3 million during the years ended December 31, 2017, 2016, and 2015, respectively. The employees’ contributions and our contributions are invested in mutual funds managed by a fund manager, or in self-directed retirement plans.

Valuation and Expense Information under ASC 718

We account for stock-based payment awards in accordance with ASC 718, which requires the measurement and recognition of compensation expense for all equity awards granted to our employees and directors, including employee stock options, RSUs, and ESPP purchase rights related to all stock-based compensation plans based on the fair value of such awards on the date of grant. We amortize stock-based compensation cost on a graded vesting basis over the vesting period reduced by actual forfeitures, after assessing the probability of achieving the requisite performance criteria with respect to performance-based awards. Stock-based compensation cost is recognized over the requisite service period for each separately vesting tranche of the award as though the award were, in substance, multiple awards. Prior to adoption of ASU 2016-09 in the first quarter of 2016 as explained more fully in Note 1—The Company and Its Significant Accounting Policies, stock-based compensation expense was reduced by estimated forfeitures.

We use the BSM option pricing model to value stock-based compensation for stock options. We value market-based awards using a Monte Carlo valuation model. We value RSUs at the market price on the date of grant.

Stock-based compensation expense related to stock options, RSUs, ESPP purchase rights, and stock options under ASC 718 for the years ended December 31, 2017, 2016, and 2015 is summarized as follows (in thousands):


	2017			2016			2015
RSUs	$	21,887		$	28,952		$	29,671
ESPP purchase rights		4,645			2,795			4,003
Employee stock options		—			79			397

Total stock-based compensation		26,532			31,826			34,071
Income tax benefit		(8,188	)		(10,342	)		(9,436	)

Stock-based compensation expense, net of tax	$	18,344		$	21,484		$	24,635

Valuation Assumptions for Stock Options and ESPP Purchases

The BSM model determines the fair value of stock options based on the stock price on the date of grant and assumptions including volatility, expected term, and interest rates. Expected volatility is based on the historical volatility of our stock over a preceding period commensurate with the expected term of the stock option. The expected term is based on management’s consideration of the historical life of the stock options, the vesting period of the stock options granted, and the contractual period of the stock options granted. The risk-free interest rate for the expected term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant. Expected dividend yield was not considered in the option pricing formula since we do not pay dividends and have no current plans to do so in the future.

Stock options were not granted during the years ended December 31, 2017, 2016, and 2015. The estimated weighted average fair value per share of ESPP purchase rights issued and the assumptions used to estimate fair value for the years ended December 31, 2017, 2016, and 2015 are as follows:


	2017			2016			2015
Weighted average fair value per share	$	12.09		$	10.69		$	10.28
Expected volatility		24% - 28	%		22% - 32	%		19% - 28	%
Risk-free interest rate		0.7% - 1.3	%		0.4% - 0.8	%		0.1% - 0.7	%
Expected term (in years)		0.5 - 2.0			0.5 - 2.0			0.5 - 2.0

Stock Option Activity

Stock options outstanding and exercisable, including performance-based and market-based options, as of December 31, 2017, 2016, and 2015 and activity for each of the years then ended are summarized as follows (in thousands, except weighted average exercise price and remaining contractual term):


	Shares			Weighted average exercise price		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Options outstanding at January 1, 2015		566		$	13.67

Options exercised		(124	)		15.35

Options outstanding at December 31, 2015		442		$	13.20

Options forfeited and expired		(12	)		10.77
Options exercised		(115	)		11.64

Options outstanding at December 31, 2016		315		$	13.86		1.46	$	9,480

Options exercised		(165	)		12.45

Options outstanding at December 31, 2017		150		$	15.43		1.27	$	2,116

Options vested and expected to vest at December 31, 2017		150		$	15.43		1.27	$	2,116

Options exercisable at December 31, 2017		150		$	15.43		1.27	$	2,116

Aggregate stock option intrinsic value represents the difference between the closing price per share of our common stock on the last trading day of the fiscal period and the exercise price of the underlying awards for the options that were in the money at December 31, 2017, 2016, and 2015. The total intrinsic value of options exercised, determined as of the date of option exercise, was $5.3, $3.8, and $3.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. There was no unrecognized compensation cost related to stock options expected to vest as of December 31, 2017. The weighted average exercise price ranges between $14.28 and $16.57. The weighted average remaining contractual term ranges between 0.86 and 1.68 years as of December 31, 2017.

Non-vested RSUs

Non-vested RSUs were awarded to employees under our equity incentive plans. Non-vested RSUs do not have the voting rights of common stock and the shares underlying non-vested RSUs are not considered issued and outstanding. Non-vested RSUs generally vest over a service period of one to four years. The compensation expense incurred for these service-based awards is based on the closing market price of our stock on the date of grant and is amortized on a graded vesting basis over the requisite service period. The weighted average fair value of RSUs granted during the years ended December 31, 2017, 2016, and 2015 were $35.89, $43.35, and $41.61, respectively.

Non-vested RSUs, including performance-based and market-based RSUs, as of December 31, 2017, 2016, and 2015, and activity for each of the years then ended, are summarized as follows (shares in thousands):


	Shares			Weighted average grant date fair value
Non-vested at January 1, 2015		2,003		$	35.91

Restricted stock granted		1,104			41.61
Restricted stock vested		(925	)		32.39
Restricted stock forfeited		(368	)		39.08

Non-vested at December 31, 2015		1,814		$	40.53

Restricted stock granted		1,359			43.35
Restricted stock vested		(787	)		38.34
Restricted stock forfeited		(303	)		39.54

Non-vested at December 31, 2016		2,083		$	43.34

Restricted stock granted		1,467			35.89
Restricted stock vested		(761	)		42.74
Restricted stock forfeited		(510	)		41.51

Non-vested at December 31, 2017		2,279		$	39.16

Vested RSUs

Performance-based RSUs that vested based on annual financial results are expensed in the period that the performance criteria were met. The grant date fair value of RSUs that vested during the years ended December 31, 2017, 2016, and 2015 were $42.74, $38.34, and $32.39 million, respectively. Aggregate intrinsic value of RSUs vested and expected to vest at December 31, 2017 was $62.7 million calculated as the closing price per share of our common stock on the last trading day of the fiscal period multiplied by 2.1 million RSUs vested and expected to vest at December 31, 2017. RSUs expected to vest represent time-based RSUs unvested and outstanding at December 31, 2017, and performance-based RSUs for which the requisite service period has not been rendered, but are expected to vest based on the achievement of performance conditions. There was approximately $34.3 million of unrecognized compensation costs related to RSUs expected to vest as of December 31, 2017. That cost is expected to be recognized over a weighted average period of 1.15 years.

Performance-based and Market-based RSUs and Stock Options

Performance-based and market-based RSUs included in the tables above as of December 31, 2017, 2016, and 2015, and activity for each of the years then ended, are summarized below (in thousands):


	Performance-based						Market-based
	RSUs			Stock Options			RSUs
Non-vested at January 1, 2015		852			16			34

Granted		569			—			18
Vested		(284	)		—			(3	)
Forfeited		(217	)		—			(26	)

Non-vested at December 31, 2015		920			16			23

Granted		821			—			—
Vested		(226	)		(4	)		—
Forfeited		(250	)		(12	)		—

Non-vested at December 31, 2016		1,265			—			23

Granted		675			—			—
Vested		(284	)		—			—
Forfeited		(447	)		—			—

Non-vested at December 31, 2017		1,209			—			23

Approximately 2% of the non-vested performance-based RSUs at December 31, 2017 subsequently vested during the first quarter of 2018 based on achievement of specified performance criteria related to revenue and non-GAAP operating income targets.

We use the BSM option pricing model to value performance-based awards. We use a Monte Carlo option pricing model to value market-based awards. The estimated grant date fair value per share of performance-based and market-based RSUs granted and the assumptions used to estimate grant date fair value for the years ended December 31, 2017, 2016, and 2015 are as follows:


	Performance-based				Market-based
	RSUs				RSUs
	Short-term		Long-term
*Year ended December 31, 2017 Grants*
Grant date fair value per share	$	47.18	$	33.43
Service period (years)		1.0		2.0 - 3.0

*Year ended December 31, 2016 Grants*
Grant date fair value per share	$	39.79	$	45.76
Service period (years)		1.0		2.0 - 3.0

*Year ended December 31, 2015 Grants*
Grant date fair value per share	$	38.77	$	42.82	$	33.84
Service period (years)		1.0		2.0 - 3.0
Derived service period (years)						1.60
Implied volatility						30.0	%
Risk-free interest rate						1.7	%

Our performance-based RSUs generally vest when specified performance criteria are met based on bookings, revenue, cash provided by operating activities, non-GAAP operating income, non-GAAP earnings per share, revenue growth compared to market comparables, non-GAAP earnings per share growth compared to cash flows from operating activities growth, or other targets during the service period; otherwise, they are forfeited. Non-GAAP operating income is defined as operating income determined in accordance with GAAP, adjusted to remove the impact of certain expenses as defined in Unaudited Non-GAAP Financial Information. Non-GAAP earnings per share is defined as net income (loss) determined in accordance with GAAP, adjusted to remove the impact of certain expenses, and the related tax effects, divided by the weighted average number of common shares and dilutive potential common shares outstanding during the period as more fully defined in Note 2—Earnings Per Share of the Notes to Consolidated Financial Statements.

The grant date fair value per share determined in accordance with the BSM valuation model is being amortized over the service period of the performance-based awards. The probability of achieving the awards was determined based on review of the actual results achieved thus far by each business unit compared with the operating plan during the pertinent service period as well as the overall strength of the business unit. Stock-based compensation expense was adjusted based on this probability assessment. As actual results are achieved during the service period, the probability assessment is updated and stock-based compensation expense adjusted accordingly. Our stock compensation expense could change significantly in future periods if our probability assessments change significantly.

Market-based awards that were granted in prior periods vest when our average closing stock price exceeds defined multiples of the closing stock price for 90 consecutive trading days. If these multiples were not achieved by the expiration date, the awards are forfeited. The grant date fair value is being amortized over the average derived service period of the awards. The average derived period and total fair value were determined using a Monte Carlo valuation model based on our assumptions, which include a risk-free interest rate and implied volatility.