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Stock-Based Compensation | 6 Months Ended
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May 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION Restricted Stock Units Restricted stock unit activity for the six months ended May 31, 2019 was as follows (in thousands):
| 2019
Beginning outstanding balance | 8,668 |
Awarded | 3,731 |
Released | (3,221 | )
Forfeited | (386 | )
Ending outstanding balance | 8,792 |
Beginning January 2019, restricted stock units granted as part of our annual review process or for promotions will vest over four years. Restricted stock units granted as part of our annual review process or for promotions with grant dates prior to January 2019 continue to vest over three years. Information regarding restricted stock units outstanding at May 31, 2019 and June 1, 2018 is summarized below:
| Number of Shares (thousands) |  | Weighted Average Remaining Contractual Life (years) |  | Aggregate Intrinsic Value(*) (millions)
2019 |  |  |  |  |
Restricted stock units outstanding | 8,792 |  |  | 1.44 |  | $ | 2,381.8 |
Restricted stock units expected to vest | 7,950 |  |  | 1.37 |  | $ | 2,153.5 |
2018 |  |  |  |  |  |  |
Restricted stock units outstanding | 9,046 |  |  | 1.36 |  | $ | 2,273.3 |
Restricted stock units expected to vest | 8,224 |  |  | 1.30 |  | $ | 2,066.9 |
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(*) | The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market values as of May 31, 2019 and June 1, 2018 were $270.90 and $251.31, respectively.
Performance Shares In the first quarter of fiscal 2019, the Executive Compensation Committee approved the 2019 Performance Share Program, the terms of which are similar to prior year programs that are still outstanding. For information regarding our Performance Shares Program including the terms, see “Note 11. Stock-Based Compensation” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2018. In the first quarter of fiscal 2019, the Executive Compensation Committee also certified the actual performance achievement of participants in the 2016 Performance Share Program. Actual performance resulted in participants achieving 200% of target or approximately 0.8 million shares. The shares granted and achieved under the 2016 Performance Share Program fully vested on the three-year anniversary of the grant on January 25, 2019, if not forfeited. As of May 31, 2019, the shares awarded under our 2019, 2018 and 2017 Performance Share Programs remain outstanding and are yet to be achieved. The following table sets forth the summary of performance shares activity for the six months ended May 31, 2019 (in thousands):
| 2019
| Shares Granted |  | Maximum Shares Eligible to Receive
Beginning outstanding balance | 1,148 |  |  | 2,296 |
Awarded | 722 |  | (1) | 614 |
Achieved | (830 | ) | (2) | (830 | )
Forfeited | (23 | ) |  | (46 | )
Ending outstanding balance | 1,017 |  |  | 2,034 |
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(1) | Included in the 0.7 million shares awarded during the six months ended May 31, 2019 were 0.4 million shares awarded for the final achievement of the 2016 Performance Share program. The remaining awarded shares were for the 2019 Performance Share Program.
(2) | Shares achieved under our 2016 Performance Share Program resulted from 200% achievement of target.
Employee Stock Purchase Plan Shares There were no stock purchases under the Employee Stock Purchase Plan (“ESPP”) during the three months ended May 31, 2019 and June 1, 2018, respectively. The assumptions used to value employee stock purchase rights during the six months ended May 31, 2019 and June 1, 2018 were as follows:
| 2019 |  | 2018
Expected life (in years) | 0.5 - 2.0 |  | 0.5 - 2.0
Volatility | 35% - 37% |  | 26% - 27%
Risk free interest rate | 2.47% - 2.63% |  | 1.54% - 1.89%
The expected life of the ESPP shares is the average of the remaining purchase periods under each offering period. Employees purchased 0.5 million shares at an average price of $129.23 and 0.7 million shares at an average price of $91.74 for the six months ended May 31, 2019 and June 1, 2018, respectively. The intrinsic value of shares purchased during the six months ended May 31, 2019 and June 1, 2018 was $51.2 million and $54.3 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares. Stock Options The Executive Compensation Committee of Adobe’s Board of Directors eliminated the use of stock option grants for all employees and the Board of Directors effective fiscal 2012 and fiscal 2014, respectively. However, we may assume the stock option plans of certain companies we acquire. As of May 31, 2019 we had 0.2 million stock options outstanding. Compensation Costs As of May 31, 2019, there was $1.45 billion of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based awards which will be recognized over a weighted average period of 2.4 years. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. Total stock-based compensation costs included in our condensed consolidated statements of income for the three months ended May 31, 2019 and June 1, 2018 were as follows (in thousands):
|  | 2019 |  | 2018
Income Statement Classifications |  | Option Grants and Stock Purchase Rights |  | Restricted Stock Units and Performance Share Awards |  | Option Grants and Stock Purchase Rights |  | Restricted Stock Units and Performance Share Awards
Cost of revenue—subscription | $ | 1,500 |  |  | $ | 6,491 |  |  | $ | 729 |  |  | $ | 4,526 |
Cost of revenue—services and support | 1,757 |  |  | 4,152 |  |  | 1,647 |  |  | 2,680 |
Research and development | 8,771 |  |  | 86,123 |  |  | 5,301 |  |  | 63,608 |
Sales and marketing | 10,087 |  |  | 58,525 |  |  | 5,443 |  |  | 42,747 |
General and administrative | 2,189 |  |  | 24,705 |  |  | 1,350 |  |  | 17,346 |
Total | $ | 24,304 |  |  | $ | 179,996 |  |  | $ | 14,470 |  |  | $ | 130,907 |
Total stock-based compensation costs included in our condensed consolidated statements of income for the six months ended May 31, 2019 and June 1, 2018 were as follows (in thousands):
|  | 2019 |  | 2018
Income Statement Classifications |  | Option Grants and Stock Purchase Rights |  | Restricted Stock Units and Performance Share Awards |  | Option Grants and Stock Purchase Rights |  | Restricted Stock Units and Performance Share Awards
Cost of revenue—subscription | $ | 2,890 |  |  | $ | 11,673 |  |  | $ | 1,497 |  |  | $ | 8,470 |
Cost of revenue—services and support | 3,755 |  |  | 7,969 |  |  | 3,663 |  |  | 5,666 |
Research and development | 17,216 |  |  | 161,942 |  |  | 10,649 |  |  | 117,681 |
Sales and marketing | 20,440 |  |  | 110,772 |  |  | 10,763 |  |  | 81,595 |
General and administrative | 5,470 |  |  | 46,860 |  |  | 2,830 |  |  | 38,088 |
Total | $ | 49,771 |  |  | $ | 339,216 |  |  | $ | 29,402 |  |  | $ | 251,500 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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