Employee Benefit Plans
Employee Stock Purchase Plan
We have an employee stock purchase plan, or ESPP, for all eligible employees. Under the ESPP, employees may purchase shares of our Class A common stock at six-month intervals at 85% of fair market value (calculated in the manner provided in the plan). Employees purchase such stock using payroll deductions, which may not exceed 15% of their total cash compensation. Shares of Class A common stock are offered under the ESPP through a series of successive offering periods, generally with a maximum duration of 24 months, subject to an additional three-month extension under certain circumstances. The plan imposes certain limitations upon an employee’s right to acquire Class A common stock, including the following: (i) no employee may purchase more than 9,000 shares of Class A common stock on any one purchase date, (ii) no employee may be granted rights to purchase more than $25,000 worth of Class A common stock for each calendar year that such rights are at any time outstanding, and (iii) the maximum number of shares of Class A common stock purchasable in total by all participants in the ESPP on any purchase date is limited to 5 million shares. The number of shares of Class A common stock reserved for issuance under the plan automatically increases in January each year. The increase is equal to 1.25% of the total number of shares of common stock outstanding on the last trading day of the immediately preceding year, subject to an annual share limit.
In 2013, 2012 and 2011, 6 million, 5 million and 4 million shares, respectively, were issued under this plan at average per share prices of $24.92, $28.32, and $29.93, respectively. At December 31, 2013, 18 million shares were available for future issuance under this plan.
Stock Incentive Plans
We have in effect stock incentive plans under which incentive stock options have been granted to employees and restricted stock units and non-qualified stock options have been granted to employees and non-employee members of the Board of Directors. Our 2012 Stock Incentive Plan, as amended and restated, or the 2012 Plan, is the successor equity incentive plan to our 1998 Stock Incentive Plan. The number of shares of Class A common stock reserved for issuance under the 2012 Plan automatically increases in January each year. The increase is equal to 4.5% of the total number of shares of common stock outstanding on the last trading day of the immediately preceding year, subject to an annual share limit.
The Board of Directors or the Plan Administrator determines eligibility and vesting schedules for all equity awards granted under the plans and, for stock options, exercise prices. We grant restricted stock units to certain employees as part of our regular annual employee equity compensation review program as well as to selected new hires and to non-employee members of the Board of Directors. Restricted stock units are share awards that entitle the holder to receive freely tradable shares of our Class A common stock upon vesting. Generally, restricted stock units vest ratably on a quarterly basis over 16 quarters from the date of grant. On a limited basis, we grant certain restricted stock units that vest in their entirety after 3 years.
In January 2011 the Compensation Committee of our Board of Directors adopted a performance restricted stock units program, or the PRSU Program. Under the PRSU Program, if the performance goals established by the Compensation Committee for a specific one-year performance cycle are achieved, our participating executive officers have the opportunity to receive grants of PRSUs in the three calendar years following the performance cycle. We granted 0.6 million, 0.4 million, 0.2 million under this program in 2013, 2012 and 2011, respectively.
Beginning in 2011, we stopped granting and currently have no plans to grant stock options, other than in connection with acquisitions. Prior stock options granted generally had a term of 10 years, and in the case of new hires were generally granted such that they would vest and become exercisable at the rate of 25% after one year and ratably on a monthly basis over a period of 36 months thereafter. Subsequent option grants to existing employees were generally granted such that they would vest and become exercisable ratably on a monthly basis over a period of 48 months measured from the date of grant. However, certain options that have been granted under our 1998 Plan or that were assumed by us in connection with certain of our acquisitions provide that the vesting of the options granted thereunder will accelerate in whole or in part upon the occurrence of certain specified events.
In connection with certain acquisitions, we have assumed stock options and restricted stock units, and have also exchanged stock options for restricted stock units granted under stock incentive plans or agreements established by the acquired company. As of December 31, 2013, 3 million shares of Class A common stock were reserved for issuance upon the exercise or issuance of equity instruments assumed under these incentive plans.
Combined Incentive Plan Activity
Stock option activity is set forth below:
|
| | | | | | | | | | | | |
| Options Outstanding |
| Number of Shares | | Weighted Average Exercise Price per Share | | Aggregate Intrinsic Value | | Weighted-Average Remaining Contractual Term |
| (In millions, except per share data) | | (In years) |
Balance at December 31, 2010 | 78 |
| | $ | 27.05 |
| | | | |
Options granted under the 1998 Plan | — |
| | 45.82 |
| | | | |
Options cancelled | (2 | ) | | 30.08 |
| | | | |
Options exercised | (10 | ) | | 23.48 |
| | | | |
Balance at December 31, 2011 | 66 |
| | 27.47 |
| | | | |
Options assumed | 4 |
| | 9.71 |
| | | | |
Options cancelled | (1 | ) | | 34.55 |
| | | | |
Options exercised | (11 | ) | | 17.09 |
| | | | |
Balance at December 31, 2012 | 58 |
| | 28.11 |
| | | | |
Options cancelled | (1 | ) | | 37.01 |
| | | | |
Options exercised | (18 | ) | | 22.49 |
| | $ | 156 |
| | |
Balance at December 31, 2013 | 39 |
| | $ | 30.39 |
| | $ | 121 |
| | 2.6 |
Exercisable at December 31, 2013 | 39 |
| | $ | 30.44 |
| | $ | 119 |
| | 2.6 |
Expected to vest after December 31, 2013 | — |
| | $ | 21.96 |
| | $ | 2 |
| | 6.0 |
The aggregate intrinsic value shown in the table above represents the difference between the fair market value of our Class A common stock on the date of exercise and the exercise price of each option, and was based on the closing price of our Class A common stock of $29.65 on December 31, 2013.
Restricted stock unit activity is set forth below:
|
| | | | | | | | | | |
| Restricted Stock Units Outstanding |
| Number of Shares | | Weighted Average Grant-Date Fair Value per Share | | Aggregate Intrinsic Value |
| (In millions, except per share data) |
Balance at December 31, 2010 | 28 |
| | $ | 27.17 |
| | |
Restricted stock units granted | 10 |
| | 42.45 |
| | |
Restricted stock units cancelled | (2 | ) | | 31.63 |
| | |
Restricted stock units vested | (14 | ) | | 28.84 |
| | |
Balance at December 31, 2011 | 22 |
| | 32.88 |
| | |
Restricted stock units granted | 13 |
| | 35.76 |
| | |
Restricted stock units assumed | 6 |
| | 37.54 |
| | |
Restricted stock units cancelled | (2 | ) | | 34.79 |
| | |
Restricted stock units vested | (14 | ) | | 29.18 |
| | |
Balance at December 31, 2012 | 25 |
| | 35.55 |
| | |
Restricted stock units granted | 14 |
| | 33.01 |
| | |
Restricted stock units cancelled | (2 | ) | | 35.04 |
| | |
Restricted stock units vested | (13 | ) | | 34.03 |
| | $ | 408 |
|
Balance at December 31, 2013 | 24 |
| | $ | 34.91 |
| | $ | 708 |
|
The per share fair values of rights granted in connection with the employee stock purchase plan and stock options assumed from acquisitions have been estimated with the following weighted average assumptions:
|
| | | | | | | | | | | | | | | | | | | | | |
| Employee Stock Purchase Rights | | Employee Stock Options Assumed |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
Expected life (in years) | 1.60 |
| | 1.43 |
| | 1.70 |
| | — | | 1.39 |
| | 3.60 |
|
Implied volatility | 0.35 |
| | 0.39 |
| | 0.37 |
| | — | | 0.41 |
| | 0.34 |
|
Risk-free interest rate | 0.25 | % | | 0.23 | % | | 0.50 | % | | — | | 0.22 | % | | 1.56 | % |
Expected dividend yield | 1.58 | % | | 1.19 | % | | 0.99 | % | | — | | 1.00 | % | | 0.80 | % |
Weighted average fair value | $ | 7.80 |
| | $ | 9.61 |
| | $ | 11.01 |
| | — | | $ | 27.54 |
| | $ | 11.72 |
|
Stock-Based Compensation Expense
The following table presents details of total stock-based compensation expense that is included in each functional line item in the consolidated statements of income:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (In millions) |
Cost of product revenue | $ | 25 |
| | $ | 27 |
| | $ | 24 |
|
Research and development | 363 |
| | 368 |
| | 363 |
|
Selling, general and administrative | 130 |
| | 148 |
| | 126 |
|
| $ | 518 |
| | $ | 543 |
| | $ | 513 |
|
The following table presents details of unearned stock-based compensation currently estimated to be expensed in 2014 through 2018 related to unvested share-based payment awards:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 | | Total |
| | | | | (In millions) | | | | |
Unearned stock-based compensation | $ | 399 |
| | $ | 249 |
| | $ | 125 |
| | $ | 23 |
| | $ | — |
| | $ | 796 |
|
The weighted-average period over which the unearned stock-based compensation is expected to be recognized is 1.31 years.
If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional equity awards or assume unvested equity awards in connection with acquisitions.
Shares Reserved For Future Issuance
We had the following shares of common stock reserved for future issuance upon the exercise or issuance of equity instruments:
|
| |
| Number of Shares |
| (In millions) |
Stock options outstanding | 39 |
Authorized for future grants under stock incentive plans | 113 |
Authorized for future issuance under stock purchase plan | 18 |
Restricted stock units outstanding | 24 |
Balance at December 31, 2013 | 194 |
401(k) Savings and Investment Plan
We sponsor a defined contribution 401(k) savings and investment plan covering substantially all of our U.S. employees, subject to certain eligibility requirements. At our discretion, we may make contributions to this plan. We have a limited matching contribution policy under which we made $18 million, $16 million and $14 million in contributions to participants in this plan in 2013, 2012 and 2011, respectively.
