STOCK PLANS AND STOCK-BASED COMPENSATION

2003 Stock Plan

On May 2003, the Board of Directors ("Board") adopted the Plantronics, Inc. 2003 Stock Plan ("2003 Stock Plan") which was approved by the stockholders in June 27, 2003. The 2003 Stock Plan, which will continue in effect until terminated by the Board, allows for the issuance of the Company's common stock through the granting of non-qualified stock options, restricted stock awards, and restricted stock units. As of March 31, 2014, there have been 13,900,000 shares of common stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) cumulatively reserved since inception of the 2003 Stock Plan for issuance to employees, non-employee directors, and consultants of Plantronics. The Company settles stock option exercises and releases of vested restricted stock with newly issued common shares.

The exercise price of stock options may not be less than 100% of the fair market value of the Company's common stock on the date of grant. The term of an option may not exceed 7 years from the date it is granted. Stock options granted to employees subsequent to September 2007 vest over a three-year period, and stock options granted from September 2004 to September 2007 vested over a four-year period. Stock options granted to non-employee directors vest over a four-year period.

Awards of restricted stock and restricted stock units with a per share or per unit purchase price less than the fair market value on the grant date that were granted from July 26, 2006 through August 4, 2011 are counted against the total number of shares issuable under the Plan as 2.5 shares for every 1 share subject thereto. No participant shall receive restricted stock awards in any fiscal year having an aggregate initial value greater than $2.0 million, and no participant shall receive restricted stock units in any fiscal year having an aggregate initial value greater than $2.0 million. Restricted stock and restricted stock units granted to employees subsequent to May 2013 vest over a three-year period, and restricted stock and restricted stock units granted from September 2007 to April 2013 vest over a three or four-year period depending on the size of the grant. Restricted stock granted to non-employee directors vests over a four-year period.

At March 31, 2014, options to purchase 1,933,775 shares of common stock and 1,115,786 shares of unvested restricted stock were outstanding, and there were 3,324,264 shares available for future grant under the 2003 Stock Plan.

2002 ESPP

On June 10, 2002, the Board adopted the 2002 Employee Stock Purchase Plan ("ESPP"), which was approved by the stockholders on July 17, 2002, to provide eligible employees with an opportunity to purchase the Company's common stock through payroll deductions. The ESPP qualifies under Section 423 of the Internal Revenue Code. Under the ESPP, which is effective until terminated by the Board, the purchase price of the Company's common stock is equal to 85% of the lesser of the closing price of the common stock on (i) the first day of the offering period or (ii) the last day of the offering period. Each offering period is six months long. There were 151,607, 158,596, and 182,209 shares issued under the ESPP in fiscal years 2014, 2013, and 2012, respectively. At March 31, 2014, there were 307,607 shares reserved for future issuance under the ESPP. The total cash received from employees as a result of stock issuances under the ESPP during fiscal year 2014 was $5.4 million, net of taxes.

Stock-based Compensation

The following table summarizes the amount of stock-based compensation expense included in the consolidated statements of operations for the periods presented:



	Fiscal Year Ended March 31,
(in thousands)	2014			2013			2012
Cost of revenues	$	2,554		$	2,020		$	2,212

Research, development and engineering	6,404			4,842			3,917
Selling, general and administrative	14,222			11,488			11,352
Stock-based compensation expense included in operating expenses	20,626			16,330			15,269
Total stock-based compensation	23,180			18,350			17,481
Income tax benefit	(6,790		)	(5,479		)	(5,463		)
Total stock-based compensation expense, net of tax	$	16,390		$	12,871		$	12,018

Stock Plan Activity

Stock Options

The following is a summary of the Company’s stock option activity during fiscal year 2014:



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)				(in years)	(in thousands)
Outstanding at March 31, 2013	2,415		$	27.96
Options granted	297		$	44.75
Options exercised	(765	)	$	24.39
Options forfeited or expired	(13	)	$	33.30
Outstanding at March 31, 2014	1,934		$	31.91	4.0	$	22,190
Vested and expected to vest at March 31, 2014	1,900		$	31.75	3.9	$	22,075
Exercisable at March 31, 2014	1,377		$	28.83	3.3	$	19,675

The total intrinsic values of options exercised during fiscal years 2014, 2013, and 2012 were $16.3 million, $15.6 million, and $27.6 million, respectively. Intrinsic value is defined as the amount by which the fair value of the underlying stock exceeds the exercise price at the time of option exercise. The total cash received from employees as a result of employee stock option exercises during fiscal year 2014 was $18.7 million, net of taxes. The total net tax benefit attributable to stock options exercised during the year ended March 31, 2014 was $5.4 million.

As of March 31, 2014, the total unrecognized compensation cost related to unvested stock options was $4.8 million and is expected to be recognized over a weighted average period of 1.9 years.

Restricted Stock

Restricted stock consists of awards of restricted stock and restricted stock units ("RSUs"). The following is a summary of the Company’s restricted stock activity during fiscal year 2014:



	Number of Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Non-vested at March 31, 2013	1,025		$	33.34
Restricted stock granted	582		$	46.02
Restricted stock vested	(385	)	$	33.17
Restricted stock forfeited	(50	)	$	37.55
Non-vested at March 31, 2014	1,172		$	39.52

The weighted average grant-date fair value of restricted stock is based on the quoted market price of the Company's common stock on the date of grant. The weighted average grant-date fair values of restricted stock granted during fiscal years 2014, 2013 and 2012 were $46.02, $32.22, and $36.37, respectively. The total grant-date fair values of restricted stock that vested during fiscal years 2014, 2013, and 2012 were $12.8 million, $7.9 million, and $5.5 million, respectively.

As of March 31, 2014, the total unrecognized compensation cost related to non-vested restricted stock awards was $28.6 million and is expected to be recognized over a weighted average period of 2.0 years.

Valuation Assumptions

The Company estimates the fair value of stock options and ESPP shares using a Black-Scholes option valuation model. At the date of grant, the Company estimated the fair value of each stock option grant and purchase right granted under the ESPP using the following weighted average assumptions:



	Employee Stock Options									ESPP
Fiscal Year Ended March 31,	2014			2013			2012			2014			2013			2012
Expected volatility	32.2		%	41.8		%	45.3		%	26.5		%	32.4		%	37.3		%
Risk-free interest rate	0.9		%	0.6		%	1.0		%	0.1		%	0.1		%	0.1		%
Expected dividends	0.9		%	1.2		%	0.6		%	0.9		%	1.0		%	0.6		%
Expected life (in years)	4.2			4.3			4.0			0.5			0.5			0.5
Weighted-average grant date fair value	$	11.15		$	10.31		$	12.06		$	9.62		$	9.00		$	8.69

The expected stock price volatility for the years ended March 31, 2014, 2013, and 2012 was determined based on an equally weighted average of historical and implied volatility. Implied volatility is based on the volatility of the Company’s publicly traded options on its common stock with terms of six months or less. The Company determined that a blend of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using exclusively historical volatility. The expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future employee behavior. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The dividend yield assumption is based on our current dividend and the market price of our common stock at the date of grant.