STOCK PLANS AND STOCK-BASED COMPENSATION

2003 Stock Plan

On May 5, 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, and restricted stock units. As of March 31, 2017, there have been 14,900,000 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, grants of restricted stock, and releases of vested restricted stock units 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 vest over a three-year period, and stock options granted to non-employee directors vest over a four-year period.

No participant shall receive restricted stock or 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 May 2011 to April 2013 vest over a four-year period. Restricted stock granted to non-employee directors subsequent to August 2014 vests over a one-year period, and restricted stock granted from August 2001 to August 2013 vests over a four-year period.

At March 31, 2017, options to purchase 1,417,531 shares of common stock and 1,164,115 shares of unvested restricted stock and restricted stock units were outstanding. There were 1,967,159 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 156,333, 168,948, and 151,648 shares issued under the ESPP in Fiscal Years 2015, 2016, and 2017 respectively. At March 31, 2017, there were 430,678 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 2017 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)	2015			2016			2017
Cost of revenues	$	2,583		$	3,306		$	3,244

Research, development and engineering	8,053			9,908			8,616
Selling, general and administrative	17,958			20,051			21,679
Stock-based compensation expense included in operating expenses	26,011			29,959			30,295
Total stock-based compensation	28,594			33,265			33,539
Income tax benefit	(8,451		)	(10,950		)	(10,768		)
Total stock-based compensation expense, net of tax	$	20,143		$	22,315		$	22,771

Stock Plan Activity

Stock Options

The following is a summary of the Company’s stock option activity during Fiscal Year 2017:



	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, 2016	1,461		$	41.24
Options granted	251		$	44.00
Options exercised	(295	)	$	33.20
Options forfeited or expired	—		$	—
Outstanding at March 31, 2017	1,417		$	43.41	4.0	$	15,209
Vested or expected to vest at March 31, 2017	1,393		$	43.35	3.9	$	15,030
Exercisable at March 31, 2017	1,007		$	41.80	3.2	$	12,415

The total intrinsic values of options exercised during Fiscal Years 2015, 2016, and 2017 were $14.0 million, $6.9 million, and $5.5 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 2017 was $9.8 million, net of taxes. The total net tax benefit attributable to stock options exercised during the year ended March 31, 2017 was $1.9 million.

As of March 31, 2017, the total unrecognized compensation cost related to unvested stock options was $3.5 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 2017:



	Number of Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Unvested at March 31, 2016	1,187		$	48.95
Restricted stock granted	673		$	44.82
Restricted stock vested	(620	)	$	46.57
Restricted stock forfeited	(68	)	$	48.52
Non-vested at March 31, 2017	1,172		$	47.86

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 2015, 2016, and 2017 were $45.26, $54.66, and $44.82, respectively. The total grant-date fair values of restricted stock that vested during Fiscal Years 2015, 2016, and 2017 were $17.6 million, $24.2 million, and $28.9 million, respectively.

As of March 31, 2017, the total unrecognized compensation cost related to non-vested restricted stock awards was $31.2 million and is expected to be recognized over a weighted average period of 1.6 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,	2015			2016			2017			2015			2016			2017
Expected volatility	28.4		%	27.0		%	31.1		%	25.5		%	33.5		%	28.8		%
Risk-free interest rate	1.4		%	1.4		%	1.1		%	0.1		%	0.3		%	0.6		%
Expected dividends	1.3		%	1.1		%	1.4		%	1.2		%	1.4		%	1.1		%
Expected life (in years)	4.2			4.2			4.4			0.5			0.5			0.5
Weighted-average grant date fair value	$	10.33		$	11.39		$	10.39		$	10.57		$	10.33		$	12.03

The expected stock price volatility for the years ended March 31, 2015, 2016, and 2017 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.