Share-Based Compensation

In December 2007, we adopted our 2007 Long-Term Incentive Plan (the "2007 Stock Plan"). Under the 2007 Stock Plan, incentive and non-qualified stock options or rights to purchase common stock may be granted to eligible participants. In addition to stock options, we may grant other equity awards such as stock appreciation rights, restricted stock awards, restricted stock units, performance awards, cash-based awards, and dividend equivalents. All awards, excluding incentive stock options, may be granted under the plan to employees, officers, directors, or any other non-employee service provider to the company. Incentive stock options may be granted only to employees of the company or a subsidiary. The exercise price of a stock option granted under the 2007 Stock Plan will be determined by the Compensation Committee at the time the option is granted and generally may not be less than 100% of the fair market value of a share of common stock as of the date of grant. The 2007 Stock Plan had an automatic share reserve increase effective the first day of each fiscal year, from 2009 through 2012. For fiscal years 2011 and 2012, this resulted in an increase of approximately 5.8 million and 5.9 million shares, respectively, available under our Stock Plans.

At our 2012 annual meeting of the stockholders, our stockholders approved certain amendments to the 2007 Stock Plan. The amendments included, among other things, setting a fixed number of shares available of 12 million, removing the evergreen provision and requiring new grants of restricted stock, restricted stock units, performance units and performance shares to count against the numerical limits of the 2007 Stock Plan as 1.76 shares for every one share that is subject to such an award.

The following have been granted under our 2007 Stock Plan: stock options, restricted stock units (RSUs) and restricted stock awards (RSAs). Collectively, all such grants are referred to as "awards." All awards deduct one share from the 2007 Stock Plan shares available for issuance for each share granted, except as described above. To the extent awards granted under the 2007 Stock Plan terminate, expire or lapse, shares subject to such awards generally will again be available for future grant.

In addition to the 2007 Stock Plan, we also maintain the 2003 Stock Plan, the 2005 Stock Plan and plans assumed through acquisitions, collectively referred to as the Stock Plans. Options are priced to be at least 100% of our common stock’s fair market value at the date of grant. Options have generally been granted for terms of either seven or ten years and generally vest ratably over a four-year period or cliff-vest at the third anniversary date of the grant.

As of December 31, 2013, the total number of shares authorized, outstanding and available for future grants under the Stock Plans was as follows:



Plan Name	Shares Authorized	Shares Outstanding	Shares Available for Future Grants
Amended and Restated 2007 Long-Term Incentive Plan	28,789,197	12,016,730	5,760,151
Other Stock Plans	14,252,015	1,009,111	—
Total	43,041,212	13,025,841	5,760,151

The composition of the equity awards outstanding as of December 31, 2012 and 2013 was as follows:



	December 31, 2012	December 31, 2013
Restricted stock	2,800,230	3,538,271
Stock options	9,032,512	9,487,570
Total outstanding awards	11,832,742	13,025,841

Restricted Stock

The following table summarizes our RSU and RSA activity for the year ended December 31, 2013:



	Number of Units or Shares	Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2012	2,800,230	$	25.57
Granted	1,542,948	$	39.24
Released	(588,550)	$	35.43
Cancelled	(216,357)	$	42.23
Outstanding at December 31, 2013	3,538,271	$	28.79

Expected to vest after December 31, 2013*	3,106,300	$	29.78

*Includes reduction of shares outstanding due to estimated forfeitures

The weighted-average grant-date fair value of RSUs and RSAs granted during 2011 and 2012 was $36.22 and $51.78, respectively. The total pre-tax intrinsic value of the RSUs and RSAs released during 2011, 2012 and 2013 was $7.7 million, $75.5 million and $29.7 million, respectively.

In February 2009, our board approved grants of RSUs to our former chief executive officer and another member of the executive team. A total of 2,000,000 RSUs were granted. The vesting of these RSUs is dependent on the company’s total shareholder return (TSR) on its common stock compared to other companies in the Russell 2000 Index. In addition, the company’s TSR must be positive for vesting to occur. Of the total RSUs granted, 1,050,000 had a measurement period at the end of three years. The Company's TSR was compared to the Russell 2000 Index in February 2012, and it was determined that the required market results were met. The remaining 950,000 RSUs have a measurement period at the end of five years. The grant-date fair value of these awards was $7.0 million and is being amortized over the awards’ service periods. The fair value was calculated using a Monte Carlo pricing model.

In 2013, we granted 1,542,948 RSUs, of which 1,206,144 vest as the employee continues to be employed with us, in four equal installments, on each of the first, second, third and fourth anniversaries of the grant date. The fair value of these service-vesting awards is measured based on the closing fair market value of our common stock on the date of grant, and share-based compensation expense is recognized ratably over the four-year service period. The remaining 336,804 awards were granted to members of our executive team. The vesting of these awards is dependent upon predetermined market results over the next three years. The fair values of these market-vesting awards were measured using a Monte Carlo simulation based on the date of grant, and share-based compensation expense is recognized ratably over the three-year vesting period.

Stock Options

The following table summarizes the stock option activity for the year ended December 31, 2013:



	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2012	9,032,512	$	21.11	5.27	$	480,191
Granted	3,128,561	$	43.95
Exercised	(2,125,859)	$	8.29
Cancelled	(547,644)	$	40.98
Outstanding at December 31, 2013	9,487,570	$	30.37	5.10	$	117,886

Vested and exercisable at December 31, 2013	4,423,014	$	15.64	4.21	$	109,170

Vested and exercisable at December 31, 2013 and expected to vest thereafter*	8,646,666	$	28.98	5.00	$	117,319

*Includes reduction of shares outstanding due to estimated forfeitures

The stock options granted in 2011, 2012 and 2013 vest as the employee continues to be employed with us, in four equal installments, on each of the first, second, third and fourth anniversaries of the grant date and have a term of seven years.

The total pre-tax intrinsic value of the stock options exercised during 2011, 2012 and 2013 was $149.2 million, $193.1 million and $76.4 million, respectively.

The following table presents the assumptions used to estimate the fair values of the stock options granted in the periods presented:



	Years Ended December 31,
	2011	2012	2013
Expected stock volatility	56% - 57%	56% - 58%	46% - 47%
Expected dividend yield	—%	—%	—%
Risk-free interest rate	0.85% - 2.35%	0.50% - 0.77%	0.57% - 0.93%
Expected life	4.75 years	4.00 - 4.75 years	3.79 years
Weighted-average grant-date fair value of options granted during the year	$18.09	$24.38	$15.86

Employee Stock Purchase Plan

An Employee Stock Purchase Plan (the "ESPP") for U.S. employees was approved by the Company's Board of Directors in 2011 and adopted by the Company on January 1, 2012. Under the ESPP, eligible employees may purchase a limited number of shares of the Company's common stock at the lesser of 85% of the market value on the enrollment date or 85% of the market value on the purchase date. The ESPP is made up of a series of offering periods. Each offering period has a maximum term of 24 months and is divided into semi-annual purchase intervals. Eligible employees may enroll at the beginning of any semi-annual purchase interval.

The fair value on each enrollment date was determined using the Black-Scholes option-pricing model. The following table presents the assumptions used to estimate the fair values of the shares granted through the ESPP in the periods presented:



	Years Ended December 31,
	2012	2013
Expected stock volatility	41% - 53%	32% - 62%
Expected dividend yield	—%	—%
Risk-free interest rate	0.06% - 0.27%	0.09% - 0.34%
Expected life	0.5 - 2.0 years	0.5 - 2.0 years
Weighted-average grant-date fair value of shares granted during the year	$14.98	$16.04

Other

During the year ended December 31, 2013, we issued an aggregate total of 348,925 restricted shares of our common stock in connection with acquisitions. The restrictions release over a required service period of three to four years as defined in each respective Stock Repurchase Agreement. The issuance of these shares of common stock was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. We measure the fair value of restricted shares issued based on the closing fair market value of the company’s common stock on the date of issuance. We recognize the expense straight-line over the service period.

Share-Based Compensation Expense

Share-based compensation expense was recognized as follows:



	Year Ended December 31,
(in thousands)	2011			2012			2013
Cost of revenue	$	7,482		$	9,592		$	12,584
Research and development	2,975			4,856			8,168
Sales and marketing	2,408			6,379			7,317
General and administrative	15,908			20,719			31,576
Pre-tax share-based compensation	28,773			41,546			59,645
Less: Income tax benefit	(9,890		)	(15,477		)	(20,080		)
Total share-based compensation expense, net of tax	$	18,883		$	26,069		$	39,565

The Company has made certain reclassifications to the prior year amounts above in order to conform to the current year's presentation. Refer to Note 1, "Company Overview, Basis of Presentation, and Summary of Significant Accounting Policies," for more information about these reclassifications.

As of December 31, 2013, there was $173.0 million of total unrecognized compensation cost related to restricted stock, options and the ESPP, which will be amortized using the straight-line method over a weighted-average period of 2.3 years.