Employee Benefit Plans and Stockholders’ Equity

401(k) Plan

We have a defined contribution 401(k) retirement plan (the 401(k) Plan) covering substantially all employees in the United States that meet certain age requirements. Employees who participate in the 401(k) Plan may contribute up to 75% of their compensation each year, subject to Internal Revenue Service limitations and the terms and conditions of the plan. Under the terms of the 401(k) Plan, we may elect to match a discretionary percentage of contributions. In April 2018, we began matching 50% of contributions up to 4% of annual compensation. Total matching contributions were $2.6 million for the twelve months ended December 31, 2018.

Employee Stock Purchase Plan, or ESPP

On May 28, 2015, our stockholders approved the 2015 Employee Stock Purchase Plan (the 2015 ESPP), which replaced our 2005 Employee Stock Purchase Plan. The 2015 ESPP permits our eligible employees to purchase discounted shares of our common stock at semi-annual intervals through periodic payroll deductions. A total of up to 1.5 million shares may be issued under the 2015 ESPP and it expires upon the earliest to occur of (a) termination of the 2015 ESPP by our board of directors, (b) issuance of all of the shares of common stock reserved for issuance under the plan, or (c) May 28, 2025.

Payroll deductions may not exceed 10% of the participant’s cash compensation subject to certain limitations, and the purchase price will not be less than 85% of the lower of the fair market value of the common stock at either the beginning of the applicable Offering Period or the Purchase Date. Under our 2015 ESPP, each Offering Period is twelve months, with new Offering Periods commencing every six months on March 1 and September 1 of each year. Each Offering Period consists of two six-month purchase periods (each a Purchase Period) during which payroll deductions of the participants are accumulated under the ESPP. The last business day of each Purchase Period is referred to as the Purchase Date. Purchase Dates are every six months on February 28 or February 29 and August 31.

We issued 189,904 and 122,857 and 99,192 shares of common stock under the 2015 ESPP during the twelve months ended December 31, 2018, 2017 and 2016, respectively. We issued 8,539 shares of common stock under the 2005 ESPP during the twelve months ended December 31, 2016. As of December 31, 2018, there were 1.1 million shares available for issuance under the 2015 ESPP.

Treasury Stock

We repurchased 0.8 million shares of our common stock for $100.0 million during 2018. We repurchased all of these shares at the market prices on the trade dates; accordingly, all amounts paid to reacquire these shares have been recorded as treasury stock in our balance sheet as of December 31, 2018.

Repurchased shares of our common stock are held as treasury shares until they are reissued or retired. When we reissue treasury stock, if the proceeds from the sale are more than the average price we paid to acquire the shares we record an increase in additional paid-in capital. Conversely, if the proceeds from the sale are less than the average price we paid to acquire the shares, we record a decrease in additional paid-in capital to the extent of increases previously recorded for similar transactions and a decrease in retained earnings for any remaining amount.

We issue new shares of common stock to satisfy option exercises and RSU vesting under our employee equity incentive plans. We have not yet determined the ultimate disposition of the shares that we repurchased in 2018, and consequently we continue to hold them as treasury shares rather than retiring them.

Description of Equity Incentive Plans

In May 2015, we adopted the Amended and Restated 2015 Equity Incentive Plan (the 2015 Plan), which replaced our 2005 Equity Incentive Plan and provides for the grant of incentive and nonstatutory stock options, restricted stock, stock bonuses, stock appreciation rights, and restricted stock units to employees, directors or consultants of the Company. As of the date of adoption, a total of 4.0 million shares were reserved for issuance pursuant to the 2015 Plan. Shares forfeited under the 2005 Equity Incentive Plan subsequent to May 28, 2015 are returned to the share reserve under the 2015 Plan and will be available for future awards. Stockholder approval is required to increase the maximum number of shares that may be issued under the 2015 Plan.

Stock Options

We have not granted any stock options since 2010. A summary of our stock option activity and related information for the twelve months ended December 31, 2018 is as follows:



	Number of Shares (in millions)		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2017	0.4		$	6.71
Exercised	(0.3	)	6.34
Forfeited	—		—
Outstanding at December 31, 2018	0.1		8.02		0.95	$	9.6
Exercisable at December 31, 2018	0.1		$	8.02	0.95	$	9.6

The total intrinsic value of stock options exercised as of the date of exercise was as follows:



	Years Ended December 31,
(In millions)	2018		2017		2016
Intrinsic value of options exercised	$	30.0	$	21.6	$	39.9

We define in-the-money options at December 31, 2018 as options that had exercise prices that were lower than the $119.80 closing market price of our common stock at that date. There were 0.1 million in-the-money options exercisable at December 31, 2018. The aggregate intrinsic value of options outstanding at December 31, 2018 is calculated as the difference between the exercise price of the underlying options and the market price of our common stock for the 0.1 million options that were in-the-money at that date.

Expense and Valuation Information

The following table summarizes share-based compensation expense related to restricted stock units, stock options, and employee stock purchases under the ESPP for the twelve months ended December 31, 2018, 2017 and 2016:



	Years Ended December 31,
(In millions)	2018		2017		2016
Cost of sales	$	9.2	$	9.6	$	12.0
Research and development	33.0		37.5		39.8
Selling, general and administrative	59.7		59.1		59.0
Total share-based compensation expense included in net loss	$	101.9	$	106.2	$	110.8

At December 31, 2018, unrecognized estimated compensation costs related to unvested restricted stock units totaled $126.5 million and are expected to be recognized through 2021.

We estimate the fair value of stock options granted and ESPP purchase rights on the date of grant using the Black-Scholes option pricing model and the assumptions below. We did not have any stock option grants during the twelve months ended December 31, 2018, 2017 and 2016.



	Years Ended December 31,
ESPP	2018		2017		2016
Risk free interest rate	1.55 – 2.25		0.75 – 1.12		0.46 – 0.57
Dividend yield	—	%	—	%	—	%
Expected volatility of DexCom common stock	0.50 – 0.67		0.33 – 0.56		0.33 – 0.57
Expected life (in years)	1		1		1

Restricted Stock Units (RSUs)

RSU awards typically vest annually over three or four years and vesting is subject to continued services. A summary of our RSU activity for the twelve months ended December 31, 2018, 2017 and 2016 is as follows:



(In millions except weighted average grant date fair value)	Shares		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Nonvested at December 31, 2015	4.1		$	50.60
Granted	1.9		68.16
Vested	(2.1	)	44.95
Forfeited	(0.2	)	56.37
Nonvested at December 31, 2016	3.7		62.51		$	218.6
Granted	1.3		75.78
Vested	(1.9	)	58.92
Forfeited	(0.4	)	67.97
Nonvested at December 31, 2017	2.7		70.68		154.5
Granted	1.7		66.07
Vested	(1.4	)	68.44
Forfeited	(0.3	)	68.56
Nonvested at December 31, 2018	2.7		$	69.19	$	319.0

The total vest-date fair value of RSUs vested was $120.9 million, $144.5 million and $150.0 million for the twelve months ended December 31, 2018, 2017 and 2016, respectively.

Reserved Shares

Shares of common stock reserved for future issuance were as follows as of the dated indicated:



	December 31,
(In millions)	2018	2017
Stock options and awards under our plans:
Stock options granted and outstanding	0.1	0.4
Unvested restricted stock units	2.7	2.7
Reserved for future grant	3.2	4.7
Employee Stock Purchase Plan	1.1	1.3
Total	7.1	9.1