4. Stock-Based Compensation Plans

Employee Stock Purchase Plan

Under the Company’s 1999 Employee Stock Purchase Plan, as amended (the “ESPP”), a total of 1,500,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. Participating employees are permitted to designate up to the lesser of $25,000 or 10% of their annual base compensation for the purchase of common stock under the ESPP. Purchases under the ESPP are made one calendar month after the end of each fiscal quarter. The price for shares of common stock purchased under the ESPP is 85% of the stock’s fair market value on the last business day of the three-month participation period. Shares issued under the ESPP during the three months ended March 31, 2014 and 2013 totaled 10,782 and 9,606, respectively.

Stock-Based Payments

A summary of stock options issued pursuant to the Company’s stock incentive plans is as follows:


						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic Value of
	Number of			Exercise		Contractual		In-the-Money
	Shares			Price		Term (Years)		Options
Outstanding as of December 31, 2013		2,469,607		$	33.07
Granted		9,044			60.40
Exercised		(120,577	)		23.90
Forfeited		(12,057	)		54.47

Outstanding as of March 31, 2014		2,346,017		$	33.54		5.69	$	60,959,472

Exercisable as of March 31, 2014		1,665,677		$	26.74		4.31	$	54,047,694

As of March 31, 2014, the Company expects that 93.9% of the options will vest over the vesting period.

The weighted-average grant date fair value of stock options granted during the three months ended March 31, 2014 and 2013 was $27.05 and $21.73, respectively. The Company issued treasury shares for the exercise of stock options during the three months ended March 31, 2014 and 2013. The total intrinsic value of stock options exercised during the three months ended March 31, 2014 and 2013 was $4.7 million and $4.3 million, respectively.

The fair value of options granted during the three months ended March 31, 2014 and 2013 was estimated on the date of grant using the Black-Scholes option-pricing model, a pricing model acceptable under U.S. GAAP, with the following weighted-average assumptions:


	Three Months Ended			Three Months Ended
	March 31, 2014			March 31, 2013
Expected life (years)		5.93			5.55
Interest rate		1.8	%		0.8	%
Volatility		45.2	%		50.0	%
Dividend yield		—			—

Expected volatilities are based on the Company’s historical common stock volatility derived from historical stock price data for historical periods commensurate with the options’ expected life. The expected life is the average number of years that the Company estimated that the options will be outstanding, based primarily on historical employee option exercise behavior. The risk-free interest rate is based on the implied yield currently available on United States Treasury zero coupon issues with a term equal to the expected term at the date of grant of the options. The expected dividend yield is zero as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future.

Stock Incentive Plan – ORCC Corporation Stock Incentive Plan, as amended and restated

In relation to the acquisition of ORCC discussed in Note 2, the Company amended the ORCC Stock Incentive Plan, as previously amended and restated (the “ORCC Incentive Plan”). Stock options were granted to ORCC employees by ORCC prior to acquisition by the Company under the ORCC Incentive Plan. Outstanding ORCC options were converted into ACI options in accordance with the terms of the Transaction Agreement. These are the only equity awards currently outstanding under the ORCC Incentive Plan and no further grants will be made.

A summary of transaction stock options issued pursuant to the Company’s stock incentive plans is as follows:


						Weighted-
				Weighted-		Average		Aggregate
				Average		Remaining		Intrinsic Value of
	Number of			Exercise		Contractual		In-the-Money
	Shares			Price		Term (Years)		Options
Outstanding as of December 31, 2013		20,815		$	105.09
Exercised		(121	)		41.76
Cancelled		(2,757	)		101.35

Outstanding as of March 31, 2014		17,937		$	106.09		2.09	$	45,667

Exercisable as of March 31, 2014		17,937		$	106.09		2.09	$	45,667

A summary of nonvested long-term incentive program performance share awards (“LTIP performance shares”) outstanding as of March 31, 2014 and changes during the period are as follows:


	Number of			Weighted-
	Shares at			Average
	Expected			Grant Date
Nonvested LTIP Performance Shares	Attainment			Fair Value
Nonvested as of December 31, 2013		906,192		$	41.35
Granted		6,355			60.40
Forfeited		(12,870	)		47.14
Vested		(211,881	)		26.63
Change in attainment for 2010 grants		8,742			26.63

Nonvested as of March 31, 2014		696,538		$	45.71

During the three months ended March 31, 2014, 211,881 shares of the LTIPs vested. The Company withheld 76,093 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

A summary of nonvested restricted share awards (“RSAs”) as of March 31, 2014 and changes during the period are as follows:


	Number of
	Restricted			Weighted-Average Grant
Nonvested Restricted Share Awards	Share Awards			Date Fair Value
Nonvested as of December 31, 2013		48,355		$	44.74
Vested		(334	)		47.63
Forfeited		(487	)		61.54

Nonvested as of March 31, 2014		47,534		$	44.55

During the three months ended March 31, 2014, 334 shares of the RSAs vested. The Company withheld 125 of those shares to pay the employees’ portion of the minimum payroll withholding taxes.

Stock Incentive Plan – S1 Corporation 2003 Stock Incentive Plan, as amended and restated

In relation to the acquisition of S1 Corporation (“S1”) in 2012, the Company amended the S1 Corporation 2003 Stock Incentive Plan, as previously amended and restated (the “S1 2003 Incentive Plan”). Restricted share awards (“RSAs) were granted to S1 employees by S1 Corporation prior to the acquisition by the Company in accordance with the terms of the Transaction Agreement (“Transaction RSAs”) under the S1 2003 Incentive Plan. These are the only equity awards currently outstanding under the S1 2003 Incentive Plan and no further grants will be made.

Under the terms of the Transaction Agreement with S1, upon the acquisition, the S1 Transaction RSAs were converted to RSAs of the Company’s stock. These awards have requisite service periods of four years and vest in increments of 25% on the anniversary of the original grant date of November 9, 2011. If an employee was terminated without cause within 12 months from the acquisition date, the RSAs 100% vest. Stock is issued without direct cost to the employee. The RSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period (vesting period) and the participant has voting rights for each share of common stock. The conversion of the Transaction RSAs was treated as a modification and as such, they were valued immediately prior to and after modification. The Company recognizes compensation expense for RSAs on a straight-line basis over the requisite service period. The incremental fair value as measure upon modification will be recognized on a straight-line basis from modification date through the end of the requisite service period.

A summary of nonvested Transaction RSAs issued under the S1 2003 Stock Incentive Plan as of March 31, 2014 and changes during the period are as follows:


	Number of
	Restricted			Weighted-Average Grant
Nonvested Transaction Restricted Share Awards	Share Awards			Date Fair Value
Nonvested as of December 31, 2013		19,184		$	35.41
Forfeited		(2,987	)		35.41

Nonvested as of March 31, 2014		16,197		$	35.41

As of March 31, 2014, there were unrecognized compensation costs of $11.6 million related to nonvested stock options, $1.9 million related to the nonvested RSAs, and $19.5 million related to the LTIP performance shares, which the Company expects to recognize over weighted-average periods of 2.2 years, 1.6 years and 2.3 years, respectively.

The Company recorded stock-based compensation expenses for the three months ended March 31, 2014 and 2013 related to stock options, LTIP performance shares, RSAs, and the ESPP of $4.8 million and $3.9 million, respectively, with corresponding tax benefits of $1.8 million and $1.5 million, respectively. Tax benefits in excess of the option’s grant date fair value are classified as financing cash flows. Estimated forfeiture rates, stratified by employee classification, have been included as part of the Company’s calculations of compensation costs. The Company recognizes compensation costs for stock option awards that vest with the passage of time with only service conditions on a straight-line basis over the requisite service period.

Cash received from option exercises for the three months ended March 31, 2014 and 2013 was $2.9 million and $3.9 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $1.8 million and $1.6 million for the three months ended March 31, 2014 and 2013, respectively.