Employee Benefit Plans

Equity Incentive Plans

The Company’s equity incentive plans include the 2006 Equity Incentive Plan (the “2006 Plan”), the 2000 Nonstatutory Stock Option Plan (the “2000 Plan”), the Amended and Restated 1996 Stock Plan (the “1996 Plan”), various equity incentive plans assumed through acquisitions, and the 2008 Employee Stock Purchase Plan (the "ESPP"). Under these plans, the Company has granted (or in the case of acquired plans assumed) stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), and performance share awards ("PSAs").

The 2006 Plan was adopted and approved by the Company’s stockholders in May 2006. To date, the Company's stockholders have approved a share reserve of 149.5 million shares of common stock plus the addition of any shares subject to options under the 2000 Plan and the 1996 Plan that were outstanding as of May 18, 2006, and that subsequently expire unexercised, up to a maximum of an additional 75.0 million shares. As of March 31, 2014, the 2006 Plan, the 2000 Plan, and the 1996 Plan, in the aggregate, had 33.9 million shares subject to currently outstanding equity awards. As of March 31, 2014, the 2006 Plan had 49.8 million shares available for future issuance and no shares are available for future issuance under either the 2000 Plan or the 1996 Plan.

The ESPP was adopted in May 2008. To date, the Company's stockholders have approved a share reserve of 19.0 million shares of the Company's common stock for issuance under this plan. The ESPP permits eligible employees to acquire shares of the Company’s common stock at a 15% discount to the offering price (as determined in the ESPP) through periodic payroll deductions of up to 10% of base compensation, subject to individual purchase limits of 6,000 shares in any twelve-month period or $25,000 worth of stock, determined at the fair market value of the shares at the time the stock purchase option is granted, in one calendar year. As of March 31, 2014, approximately 14.4 million shares have been issued and 4.6 million shares remain available for future issuance under the ESPP.

In connection with certain past acquisitions, the Company assumed stock options, RSUs, RSAs and PSAs under the assumed stock plans of the acquired companies and exchanged the assumed awards for the Company's stock options, RSUs, RSAs and PSAs, respectively. No new stock options, RSUs, RSAs and PSAs can be granted under these plans. As of March 31, 2014, stock options, RSUs, RSAs and PSAs representing approximately 5.7 million shares of common stock were outstanding under all awards assumed through the Company's acquisitions.

Stock Option Activities

The following table summarizes the Company’s stock option activity and related information as of and for the three months ended March 31, 2014 (in millions, except for per share amounts and years):



	Outstanding Options
	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance as of December 31, 2013	23.1		$	25.15
Canceled	(0.3	)	30.34
Exercised	(3.7	)	20.24
Expired	(0.6	)	28.76
Balance as of March 31, 2014	18.5		$	25.92	2.2	$	52.9

As of March 31, 2014:
Vested and expected-to-vest options	18.2		$	26.04	2.1	$	50.1
Exercisable options	16.7		$	26.48	1.8	$	36.3

The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $25.76 per share as of March 31, 2014, and the exercise price multiplied by the number of related options. The pre-tax intrinsic value of options exercised, representing the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option, was $23.8 million for the three months ended March 31, 2014, respectively.

Restricted Stock Unit, Restricted Stock Award, and Performance Share Award Activities

The following table summarizes the Company’s RSU, RSA, and PSA activity and related information as of and for the three months ended March 31, 2014 (in millions, except per share amounts and years):



	Outstanding RSUs, RSAs, and PSAs
	Number of Shares		Weighted Average Grant-Date Fair Value per Share		Weighted Average Remaining Contractual Term (In Years)	Aggregate Intrinsic Value
Balance as of December 31, 2013	25.4		$	23.44
RSUs granted ⁽¹⁾⁽⁴⁾	1.9		22.14
RSUs assumed ⁽²⁾	0.4		22.66
RSAs assumed ⁽²⁾	0.9		22.66
PSAs granted⁽³⁾⁽⁴⁾	0.8		25.22
PSAs assumed ⁽²⁾	0.2		22.66
RSUs vested	(4.6	)	24.05
RSAs vested	(0.3	)	19.59
PSAs vested	(1.0	)	38.10
RSUs canceled	(0.5	)	21.55
PSAs canceled	(2.1	)	33.85
Balance as of March 31, 2014	21.1		$	21.57	1.4	$	543.3

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⁽¹⁾	Includes service-based and market-based RSUs granted under the 2006 Plan according to its terms.


⁽²⁾	RSUs, RSAs, and PSAs assumed in connection with the acquisition of WANDL.

⁽³⁾

The number of shares subject to PSAs granted represents the aggregate maximum number of shares that may be issued pursuant to the award over its full term. The aggregate number of shares subject to these PSAs that would be issued if performance goals determined by the Compensation Committee are achieved at target is 0.4 million shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 0.8 million shares.

⁽⁴⁾

On February 20, 2014, the Company announced its intention to initiate a quarterly cash dividend of $0.10 per share of common stock in the third quarter of 2014. As a result of the Company's announcement, the grant date fair value of RSUs and PSAs granted after the announcement date were reduced by the present value of the dividends expected to be paid on the underlying shares of common stock during the requisite and derived service period as these awards are not entitled to receive dividends until vested.

Employee Stock Purchase Plan

The Company's ESPP is implemented in a series of offering periods, each six months in duration, or a shorter period as determined by the Board. Employees purchased 1.5 million and 1.9 million shares of common stock through the ESPP at an average exercise price of $18.67 and $15.05 per share for the three months ended March 31, 2014 and March 31, 2013, respectively.

Valuation Assumptions

The weighted-average assumptions used and the resulting estimates of fair value for ESPP and market-based RSUs were as follows:



	Three Months Ended March 31,
	2014	2013
ESPP ⁽¹⁾:
Volatility	33%	36%
Risk-free interest rate	0.1%	0.1%
Expected life (years)	0.5	0.5
Dividend yield	—	—
Weighted-average fair value per share	$6.37	$5.63

Market-based RSUs ⁽²⁾:
Volatility	36%	—
Risk-free interest rate	1.6%	—
Dividend yield	0% - 1.5%	—
Weighted-average fair value per share	$18.28	—

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⁽¹⁾	The Black-Scholes-Merton option-pricing model is utilized to estimate the fair value of ESPP.

⁽²⁾

The fair value of market-based RSUs utilizes a Monte Carlo valuation methodology. The Company amortizes the fair value of these awards over the derived service period adjusted for estimated forfeitures for each separately vesting tranche of the award. Provided that the derived service is rendered, the total fair value of the market-based RSUs at the date of grant is recognized as compensation expense even if the market condition is not achieved. However, the number of shares that ultimately vest can vary significantly with the performance of the specified market criteria.

Share-Based Compensation Expense

Share-based compensation expense associated with stock options, RSUs, RSAs, PSAs, and ESPP was recorded in the following cost and expense categories in the Condensed Consolidated Statements of Operations (in millions):



	Three Months Ended March 31,
	2014		2013
Cost of revenues - Product	$	1.3	$	0.9
Cost of revenues - Service	4.0		4.6
Research and development	32.1		23.6
Sales and marketing	14.6		14.5
General and administrative	8.8		6.3
Total	$	60.8	$	49.9

The following table summarizes share-based compensation expense by award type (in millions):



	Three Months Ended March 31,
	2014		2013
Stock options	$	5.1	$	9.5
RSUs, RSAs, and PSAs	51.8		37.0
ESPP	3.9		3.4
Total	$	60.8	$	49.9

The following table presents unrecognized compensation cost, adjusted for estimated forfeitures, recognized over a weighted-average period related to unvested stock options, RSUs, RSAs, and PSAs as of March 31, 2014 (in millions, except years):



	Unrecognized Compensation Cost		Weighted Average Period (In Years)
Stock options	$	25.9	1.7
RSUs, RSAs, and PSAs	$	293.1	2.0