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").
As of December 31, 2013, a total of approximately 103.8 million shares of common stock were reserved for future issuance upon exercise of stock options and vesting of RSUs, RSAs, and PSAs, and for the future grant of share-based compensation awards under the Company's equity incentive plans.
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 December 31, 2013, the 2006 Plan had 43.8 million shares subject to currently outstanding equity awards and 49.1 million shares available for future issuance. Options granted under the 2006 Plan have a maximum term of seven years from the date of grant, and generally vest and become exercisable over a four-year period. Subject to the terms of change of control severance agreements, and except for a limited number of shares allowed under the 2006 Plan, RSUs or PSAs that vest solely based on continuing employment or provision of services will vest in full no earlier than three years from the grant date, or in the event vesting is based on factors other than continued future provision of services, such awards will vest in full no earlier than one year from the grant date.
During the year ended December 31, 2012, the Company completed the acquisitions of Mykonos and Contrail and assumed their respective plans: Mykonos Software, Inc. 2010 Stock Plan and Contrail Systems Inc. 2012 Stock Plan. In connection with these plans, the Company assumed stock options, RSUs, and RSAs and exchanged the assumed awards for Juniper Networks' stock options, RSUs, and RSAs, respectively. No additional awards can be granted under these plans. The Company assumed an aggregate of 7.0 million shares of stock options, RSUs, and RSAs in connection with the acquisitions of Mykonos and Contrail, of which 5.8 million shares were exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering and/or the private offering safe harbor provision of Rule 506 of Regulation D promulgated under the Securities Act. As of December 31, 2013 stock options, RSUs, and RSAs representing approximately 4.7 million shares of common stock were outstanding under all awards assumed through the Company's acquisitions.
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 the ESPP. 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 December 31, 2013, approximately 12.8 million shares have been issued and 6.2 million shares remain available for future issuance under the ESPP.
Stock Option Activities
Since 2006, the Company has granted stock option awards that have a maximum contractual life of seven years from the date of grant. Prior to 2006, stock option awards generally had a ten-year contractual life from the date of grant.
The following table summarizes the Company’s stock option activity and related information as of and for the three years ended December 31, 2013 (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, 2010 | 49.4 |
| | $ | 21.90 |
| | 4.1 | | $ | 744.5 |
|
Granted | 5.6 |
| | 37.17 |
| | | | |
Canceled | (1.9 | ) | | 26.76 |
| | | | |
Exercised | (13.9 | ) | | 21.13 |
| | | | |
Expired | (0.6 | ) | | 34.32 |
| | | | |
Balance as of December 31, 2011 | 38.6 |
| | $ | 23.98 |
| | 3.7 | | $ | 75.3 |
|
Granted | 3.1 |
| | 22.81 |
| | | | |
Assumed(*) | 0.9 |
| | 0.57 |
| | | | |
Canceled | (2.8 | ) | | 26.64 |
| | | | |
Exercised | (3.6 | ) | | 11.71 |
| | | | |
Expired | (2.1 | ) | | 26.97 |
| | | | |
Balance as of December 31, 2012 | 34.1 |
| | $ | 24.13 |
| | 3.1 | | $ | 52.5 |
|
Granted | — |
| | — |
| | | | |
Canceled | (1.3 | ) | | 29.56 |
| | | | |
Exercised | (5.6 | ) | | 15.58 |
| | | | |
Expired | (4.1 | ) | | 28.35 |
| | | | |
Balance as of December 31, 2013 | 23.1 |
| | $ | 25.15 |
| | 2.4 | | $ | 44.6 |
|
| | | | | | | |
As of December 31, 2013: | | | | | | | |
Vested and expected-to-vest options | 22.8 |
| | $ | 25.24 |
| | 2.4 | | $ | 42.0 |
|
Exercisable options | 20.5 |
| | $ | 25.40 |
| | 2.0 | | $ | 30.0 |
|
| |
(*) | Stock options assumed in connection with the acquisition of Contrail. |
Aggregate intrinsic value represents the difference between the Company’s closing stock price on the last trading day of the period, which was $22.57 per share as of December 31, 2013 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 the exercise and the exercise price of each option, was $29.4 million, $27.9 million, and $249.8 million for 2013, 2012, and 2011, respectively. Total fair value of options vested during 2013, 2012, and 2011 was $45.2 million, $70.9 million, and $80.7 million, respectively.
The following table summarizes additional information regarding outstanding and exercisable options as of December 31, 2013:
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| | | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
Range of Exercise Price (In dollars) | | Number Outstanding (In millions) | | Weighted Average Remaining Contractual Life (In years) | | Weighted Average Exercise Price (In dollars) | | Number Exercisable (In millions) | | Weighted Average Exercise Price (In dollars) |
$0.03 - $15.09 | 2.9 |
| | 3.9 | | $ | 10.89 |
| | 2.3 |
| | $ | 13.76 |
|
$16.00 - $21.12 | 2.4 |
| | 1.4 | | 18.41 |
| | 2.3 |
| | 18.33 |
|
$21.43 - $23.84 | 2.4 |
| | 2.2 | | 22.46 |
| | 2.1 |
| | 22.60 |
|
$23.89 - $24.20 | 2.6 |
| | 2.3 | | 24.16 |
| | 2.1 |
| | 24.15 |
|
$24.25 - $25.49 | 2.3 |
| | 1.3 | | 25.07 |
| | 2.3 |
| | 25.07 |
|
$25.50 - $26.90 | 3.2 |
| | 1.8 | | 26.55 |
| | 3.2 |
| | 26.55 |
|
$26.97 - $29.89 | 3.1 |
| | 2.6 | | 28.54 |
| | 2.9 |
| | 28.52 |
|
$29.93 - $38.93 | 2.2 |
| | 2.2 | | 33.31 |
| | 1.9 |
| | 33.16 |
|
$40.26 - $40.26 | 1.1 |
| | 4.0 | | 40.26 |
| | 0.8 |
| | 40.26 |
|
$44.00 - $44.00 | 0.9 |
| | 4.1 | | 44.00 |
| | 0.6 |
| | 44.00 |
|
$0.03 - $44.00 | 23.1 |
| | 2.4 | | $ | 25.15 |
| | 20.5 |
| | $ | 25.40 |
|
Restricted Stock Unit, Restricted Stock Award, and Performance Share Award Activities
RSUs and RSAs generally vest over a period of three to four years from the date of grant and PSAs generally vest after three years provided that certain annual performance targets and other vesting criteria are met. Until vested, RSUs and PSAs do not have the voting and dividend participation rights of common stock and the shares underlying the awards are not considered issued and outstanding.
The following table summarizes the Company’s RSU, RSA, and PSA activity and related information as of and for the three years ended December 31, 2013 (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, 2010 | 14.2 |
| | $ | 25.94 |
| | 1.7 | | $ | 522.9 |
|
RSUs granted | 7.3 |
| | 31.75 |
| | | | |
PSAs granted(1) | 4.5 |
| | 38.64 |
| | | | |
RSUs vested(6) | (1.7 | ) | | 23.26 |
| | | | |
PSAs vested(6) | (0.8 | ) | | 24.76 |
| | | | |
RSUs canceled | (1.0 | ) | | 31.57 |
| | | | |
PSAs canceled | (2.9 | ) | | 30.72 |
| | | | |
Balance as of December 31, 2011 | 19.6 |
| | $ | 30.27 |
| | 1.5 | | $ | 400.5 |
|
RSUs granted | 9.9 |
| | 20.79 |
| | | | |
RSUs assumed(3)(4) | 0.2 |
| | 22.21 |
| | | | |
PSAs granted(2) | 2.2 |
| | 23.07 |
| | | | |
RSAs assumed(4) | 5.8 |
| | 19.59 |
| | | | |
RSUs vested(6) | (3.1 | ) | | 27.04 |
| | | | |
PSAs vested(6) | (1.9 | ) | | 18.21 |
| | | | |
RSAs vested(6) | (0.7 | ) | | 19.59 |
| | | | |
RSUs canceled | (2.9 | ) | | 27.77 |
| | | | |
PSAs canceled | (2.3 | ) | | 29.71 |
| | | | |
Balance as of December 31, 2012 | 26.8 |
| | $ | 27.76 |
| | 1.7 | | $ | 565.0 |
|
RSUs granted | 10.3 |
| | 20.32 |
| | | | |
PSAs granted(5) | 2.2 |
| | 21.27 |
| | | | |
RSUs vested(6) | (6.1 | ) | | 26.15 |
| | | | |
PSAs vested(6) | (1.1 | ) | | 28.52 |
| | | | |
RSAs vested(6) | (1.6 | ) | | 19.59 |
| | | | |
RSUs canceled | (3.4 | ) | | 22.99 |
| | | | |
PSAs canceled | (1.7 | ) | | 29.10 |
| | | | |
Balance at December 31, 2013 | 25.4 |
| | $ | 23.44 |
| | 1.1 | | $ | 573.5 |
|
| | | | | | | |
As of December 31, 2013: | | | | | | | |
Vested and expected-to-vest RSUs, RSAs and PSAs | 20.8 |
| | $ | 23.77 |
| | 1.0 | | $ | 469.2 |
|
________________________________
| |
(1) | 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 is estimated at 1.9 million shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 4.5 million shares. |
| |
(2) | 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 0.9 million shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 2.2 million shares. |
| |
(3) | RSUs assumed in connection with the acquisition of Mykonos. |
| |
(4) | RSUs and RSAs assumed in connection with the acquisition of Contrail. |
| |
(5) | 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 1.1 million shares. Depending on achievement of such performance goals, the range of shares that could be issued under these awards is 0 to 2.2 million shares. |
| |
(6) | Total fair value of RSUs, RSAs, and PSAs vested during 2013, 2012, and 2011 was $221.5 million, $132.0 million, and $57.7 million, respectively. |
Shares Available for Grant
The following table presents the stock activity and the total number of shares available for grant under the 2006 Plan as of December 31, 2013 (in millions):
|
| | |
| Number of Shares |
Balance as of December 31, 2012 | 57.3 |
|
RSUs and PSAs granted (1) | (26.1 | ) |
RSUs and PSAs canceled (1) | 12.6 |
|
Options canceled (2) | 1.2 |
|
Options expired (2) | 4.1 |
|
Balance as of December 31, 2013 | 49.1 |
|
________________________________
| |
(1) | RSUs and PSAs with a per share or unit purchase price lower than 100% of the fair market value of the Company's common stock on the day of the grant under the 2006 Plan are counted against shares authorized under the plan as two and one-tenth shares of common stock for each share subject to such award. The number of shares subject to PSAs granted represents the maximum number of shares that may be issued pursuant to the award over its full term. |
| |
(2) | Includes canceled or expired options under the 1996 Plan and the 2000 Plan that expired after May 18, 2006, which become available for grant under the 2006 Plan according to its terms. |
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 approximately 3.3 million, 3.5 million, and 2.4 million shares of common stock through the ESPP at an average exercise price of $16.53, $16.26, and $21.53 per share during 2013, 2012, and 2011, respectively.
Valuation Assumptions
The weighted-average assumptions used and the resulting estimates of fair value for stock options and ESPP were as follows:
|
| | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Stock Options: | | | | | |
Volatility | — | | 45% | | 43% |
Risk-free interest rate | — | | 0.7% | | 1.5% |
Expected life (years) | 0 years | | 4.2 | | 4.1 |
Dividend yield | — | | — | | — |
Weighted-average fair value per share | — | | $8.47 | | $13.17 |
| | | | | |
ESPP: | | | | | |
Volatility | 36% | | 47% | | 41% |
Risk-free interest rate | 0.1% | | 0.1% | | 0.2% |
Expected life (years) | 0.5 | | 0.5 | | 0.5 |
Dividend yield | — | | — | | — |
Weighted-average fair value per share | $5.54 | | $5.53 | | $7.48 |
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 Company's Consolidated Statements of Operations (in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Cost of revenues - Product | $ | 4.7 |
| | $ | 4.6 |
| | $ | 4.6 |
|
Cost of revenues - Service | 15.4 |
| | 17.0 |
| | 15.7 |
|
Research and development | 127.6 |
| | 109.1 |
| | 97.7 |
|
Sales and marketing | 70.9 |
| | 81.6 |
| | 70.9 |
|
General and administrative | 26.0 |
| | 31.1 |
| | 33.3 |
|
Total | $ | 244.6 |
| | $ | 243.4 |
| | $ | 222.2 |
|
The following table summarizes share-based compensation expense by award type (in millions):
|
| | | | | | | | | | | |
| Years Ended December 31, |
| 2013 | | 2012 | | 2011 |
Stock options | $ | 31.5 |
| | $ | 58.9 |
| | $ | 76.2 |
|
RSUs, RSAs, and PSAs | 196.8 |
| | 163.7 |
| | 127.5 |
|
ESPP | 16.3 |
| | 20.8 |
| | 18.5 |
|
Total | $ | 244.6 |
| | $ | 243.4 |
| | $ | 222.2 |
|
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 December 31, 2013 (in millions, except years):
|
| | | | | |
| Unrecognized
Compensation Cost | | Weighted Average
Period
(In Years) |
Stock options | $ | 33.6 |
| | 1.8 |
RSUs, RSAs, and PSAs | $ | 279.1 |
| | 1.8 |
401(k) Plan
The Company maintains a savings and retirement plan qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "IRC"). Employees meeting the eligibility requirements, as defined under the IRC, may contribute up to the statutory limits each year. The Company currently matches 30% of all eligible employee contributions which vest immediately. The Company’s matching contributions to the plan totaled $20.7 million, $20.2 million, and $16.3 million during the years ended December 31, 2013, 2012, and 2011, respectively.
Deferred Compensation Plan
The Company’s non-qualified deferred compensation (“NQDC”) plan is an unfunded and unsecured deferred compensation arrangement. Under the NQDC plan, officers and other senior employees may elect to defer a portion of their compensation and contribute such amounts to one or more investment funds. The NQDC plan assets are included within short-term investments and offsetting obligations are included within accrued compensation in the Consolidated Balance Sheets. The investments are considered trading securities and are reported at fair value. The realized and unrealized holding gains and losses related to these investments are recorded in other expense, net, and the offsetting compensation expense is recorded as operating expenses in the Consolidated Statements of Operations. The deferred compensation liability under the NQDC plan was approximately $15.4 million and $12.6 million as of December 31, 2013 and December 31, 2012, respectively.
