16)

Stock-Based Compensation

Employee Stock Purchase Plans

The 2014 ESPP Plan was adopted by the Board of Directors on February 10, 2014 and approved by the Company’s stockholders on May 5, 2014. The 2014 ESPP Plan authorizes the issuance of up to an aggregate of 2,500,000 shares of common stock to participating employees. Offerings under the 2014 ESPP Plan commence on June 1 and December 1 and terminate, respectively, on November 30 and May 31. Historically, under the 2014 ESPP Plan, eligible employees could purchase shares of common stock through payroll deductions of up to 10% of their compensation or up to an annual maximum amount of $21,250. The price at which an employee’s purchase option was exercised for each offering period was the lower of (1) 85% of the closing price of the common stock on the NASDAQ Global Select Market on the day that each offering commences, or (2) 85% of the closing price on the day that the offering terminated. On January 31, 2017, the Compensation Committee of the Board of Directors approved an increase in the exercise price to the lower of (1) 90% of the closing price of the common stock on the NASDAQ Global Select Market on the day that each offering commences, or (2) 90% of the closing price on the day that each offering terminates. The increase in the exercise price became effective for the Offering commencing on June 1, 2017. As a result of this change, the annual maximum payroll deduction was increased from $21,250 to $22,500. During 2017, 2016, and 2015, the Company issued 105,506, 139,079, and 140,531 shares, respectively, of common stock to employees who participated in the 2014 ESPP Plan at exercise prices of $46.37 and $74.12 per share in 2017, $31.40 and $35.16 per share in 2016, and $30.74 and $31.34 per share in 2015. As of December 31, 2017, there were 2,032,403 shares reserved for future issuance under the 2014 ESPP Plan.

Equity Incentive Plans

The Company has granted RSUs to employees and directors under the 2014 Stock Incentive Plan (the “2014 Plan”). The 2014 Plan is administered by the Compensation Committee of the Company’s Board of Directors. The 2014 Plan is intended to attract and retain employees and directors, and to provide an incentive for these individuals to assist the Company to achieve long-range performance goals and to enable these individuals to participate in the long-term growth of the Company.

The 2014 Plan was adopted by the Board of Directors on February 10, 2014 and was approved by the Company’s stockholders on May 5, 2014. Up to 18,000,000 shares of common stock (subject to adjustment in the event of stock splits and other similar events) may be issued pursuant to awards granted under the 2014 Plan. The Company may grant options, RSUs, restricted stock, stock appreciation rights (“SARs”) and other stock-based awards to employees, officers, directors, consultants and advisors under the 2014 Plan. Any full-value awards granted under the 2014 Plan will be counted against the shares reserved for issuance under the 2014 Plan as 2.4 shares for each share of common stock subject to such award and any award granted under the 2014 Plan that is not a full-value award (including, without limitation, any option or SAR) will be counted against the shares reserved for issuance under the plan as one share for each one share of common stock subject to such award. “Full-value award” means any RSU, or other stock-based award with a per share price or per unit purchase price lower than 100% of fair market value on the date of grant. To the extent a share that was subject to an award that counted as one share is returned to the 2014 Plan, each applicable share reserve will be credited with one share. To the extent that a share that was subject to an award that counts as 2.4 shares is returned to the 2014 Plan, each applicable share reserve will be credited with 2.4 shares. As of December 31, 2017, there were 14,548,013 shares reserved for future issuance under the 2014 Plan.

The Company’s 2004 Stock Incentive Plan (the “2004 Plan”) expired in March 2014 and no further awards may be granted under the 2004 Plan, although there are still outstanding RSUs which may vest under the 2004 Plan. The Company’s Second Restated 1995 Stock Incentive Plan (the “1995 Plan”) expired in November 2005 and no further awards may be granted under the 1995 Plan. The Company’s 1997 Director Stock Plan expired in February 2007 and no further awards may be granted under the 1997 Director Stock Plan. The 2004 Plan, the 1995 Plan, the 1997 Director Stock Plan and the 2014 Plan are referred to herein as the “Plans.”

Stock options were granted at an exercise price equal to 100% of the fair value of the Company’s common stock on the date of grant. Generally, stock options granted to employees under the 1995 Plan and the 2004 Plan from 2001 to 2006, vested 25% after one year and 6.25% per quarter thereafter, and expired 10 years after the grant date. Options granted to directors generally vested at the earliest of (1) one day prior to the next annual meeting, (2) 13 months from the date of grant, or (3) the effective date of an acquisition. There were no remaining outstanding stock options as of December 31, 2017 and 2016, respectively under any of the Plans. RSUs granted to employees in 2017, 2016 and 2015 generally vest 33% per year on the anniversary of the date of grant. RSUs granted to certain employees who are at least 60 years old and have a minimum of 10 Years of Service (as defined in the applicable RSU agreement) are expensed immediately. RSUs granted to directors generally vest at the earliest of (1) one day prior to the next annual meeting, (2) 13 months from date of grant, or (3) the effective date of a change in control of the Company. Certain RSUs are subject to performance conditions (“performance shares”) under the Company’s 2004 Plan and 2014 Plan. Such performance shares are available, subject to time-based vesting conditions, if, and to the extent that, financial or operational performance criteria for the applicable period are achieved. Accordingly, the number of performance shares earned will vary based on the level of achievement of financial or operational performance objectives for the applicable period.

In connection with the completion of the Newport Merger, the Company assumed:

•

all RSUs granted under any Newport equity plan that were outstanding immediately prior to the effective time of the Newport Merger, and as to which shares of Newport common stock were not fully distributed in connection with the closing of the Newport Merger, and

•

all stock appreciation rights granted under any Newport equity plan, whether vested or unvested, that were outstanding immediately prior to the effective time of the Newport Merger.

As of the effective time of the Newport Merger, based on a formula provided in the Merger Agreement, (a) the Newport RSUs were converted automatically into RSUs with respect to 360,674 shares of the Company’s common stock (the “Assumed RSUs”), and (b) the Newport stock appreciation rights were converted automatically into SARs with respect to 899,851 shares of the Company’s common stock (the “Assumed SARs”).

Included in the total number of Assumed RSUs were 36,599 RSUs for outside directors that were part of the Newport Deferred Compensation Plan (the “DC Plan”), from which 19,137 underlying shares were released in May 2016, and 5,515 shares were released in May 2017. As of December 31, 2017, 12,134 Company RSUs remained outstanding under the DC Plan, and an additional 122 shares of the Company’s common stock were added to the DC Plan due to reinvested dividends. As of December 31, 2016, 17,462 Company RSUs remained outstanding under the DC Plan, and an additional 187 shares of the Company’s common stock were added to the DC Plan due to reinvested dividends. These Assumed RSUs will not become issued shares until their respective release dates.

The shares of the Company’s common stock that are subject to the Assumed SARs and the Assumed RSUs are issuable pursuant to the Company’s 2014 Plan.

The 1,260,525 shares of the Company’s common stock that are issuable pursuant to the Assumed RSUs and the Assumed SARs under the 2014 Plan were registered under the Securities Act of 1933, as amended (“Securities Act”), on a registration statement on Form S-8. These shares are in addition to the 18,000,000 shares of the Company’s common stock reserved for issuance under the 2014 Plan and previously registered under the Securities Act on a registration statement on Form S-8.

The following table presents the activity for RSUs under the Plans:


	Year Ended December 31,
	2017
	Non-vested RSUs			Weighted Average Grant Date Fair Value
Non-vested RSUs — beginning of period		1,325,516		$	34.38
Accrued dividend shares Granted		122 389,610			78.34 67.69
Vested		(684,967	)		34.58
Forfeited or expired		(86,902	)		38.97

Non-vested RSUs — end of period		943,379		$	47.57

The following table presents the activity for SARs under the Plans:


	Year Ended December 31,
	2017
	Non-vested SARs			Weighted Average Base Value
SARs — beginning of period		599,334		$	28.10
Exercised		(289,822	)		27.60
Forfeited or expired		(26,605	)		28.07

SARs Outstanding — end of period		282,907		$	28.62

At December 31, 2017, the Company’s outstanding and exercisable SARs, the weighted-average base value, the weighted average remaining contractual life and the aggregate intrinsic value thereof, were as follows:


	Number of Shares		Weighted Average Base Value		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
SARs outstanding		282,907	$	28.62		3.3	$	18,639
SARs exercisable		221,375	$	27.92		3.0	$	14,740

The total cash received from employees as a result of employee stock option exercises during 2015 was approximately $592. In connection with these exercises, the tax benefit realized by the Company in 2015 was approximately $21. There were no options outstanding or exercisable under the Plans at December 31, 2017 and 2016, respectively.

The Company settles employee stock option exercises, RSU vesting and SARs exercises with newly issued shares of the Company’s common stock.

Stock-Based Compensation Expense

The Company recognized the full impact of its share-based payment plans in the consolidated statements of operations and comprehensive income for the years 2017, 2016 and 2015. As of December 31, 2017 and 2016, the Company capitalized $471 of such cost on its consolidated balance sheet. The following table reflects the effect of recording stock-based compensation for the years 2017, 2016 and 2015:


	Years Ended December 31,
	2017			2016		2015
Stock-based compensation expense by type of award:
RSUs	$	22,428		$	23,302	$	11,885
SARs		529			700		—
Employee stock purchase plan		1,421			1,226		1,128

Total stock-based compensation		24,378			25,228		13,013
Windfall tax effect on stock-based compensation		(11,071	)		—		—

Net effect on net income	$	13,307		$	25,228	$	13,013

Effect on net earnings per share:
Basic	$	0.25		$	0.47	$	0.24

Diluted	$	0.24		$	0.47	$	0.24

The pre-tax effect within the consolidated statements of operations and comprehensive income of recording stock-based compensation for the years 2017, 2016 and 2015 was as follows:


	Years Ended December 31,
	2017		2016		2015
Cost of revenues	$	3,894	$	2,997	$	1,814
Research and development expense		2,816		2,529		1,590
Selling, general and administrative expense		17,668		19,702		9,609

Total pre-tax stock-based compensation expense	$	24,378	$	25,228	$	13,013

Valuation Assumptions

The Company determines the fair value of RSUs based on the closing market price of the Company’s common stock on the date of the award, and estimates the fair value of stock options and employee stock purchase plan rights using the Black-Scholes valuation model. Such values are recognized as expense on a straight-line basis over the requisite service periods, net of estimated forfeitures except for retirement eligible employees in which the Company expenses the fair value of the grant in the period the grant is issued. The estimation of stock-based awards that will ultimately vest requires significant judgment. The Company considers many factors when estimating expected forfeitures, including types of awards and historical experience. Actual results, and future changes in estimates, may differ substantially from the Company’s current estimates.

The Company did not grant options during 2017, 2016 and 2015. There were no options outstanding in 2017 and 2016. The total intrinsic value of options exercised during 2015 was approximately $494.

The weighted average fair value per share of employee stock purchase plan rights granted in 2017, 2016 and 2015 was $13.14, $8.52 and $8.16, respectively. The fair value of the employees’ purchase plan rights was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Years Ended December 31,
	2017			2016			2015
Employee stock purchase plan rights:
Expected life (years)		0.5			0.5			0.5
Risk-free interest rate		0.8	%		0.5	%		0.1	%
Expected volatility		26.5	%		25.4	%		26.4	%
Expected annual dividends per share	$	0.69		$	0.68		$	0.675

Expected volatilities for 2017, 2016 and 2015 are based on a combination of implied and historical volatilities of the Company’s common stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

The total intrinsic value of options exercised, SARs exercised and the total fair value of RSUs vested during 2017, 2016 and 2015 was approximately $60,302, $18,844 and $12,868, respectively. As of December 31, 2017, the unrecognized compensation cost related to RSUs and SARs was approximately $20,314 and will be recognized over an estimated weighted average amortization period of 0.93 years.