F-17
Stock-based compensation
Wemeasure stock-based compensation expense for equity-classified awards, principally related to stock options, restricted
stockunits, orRSUs, and stockpurchase rights under our Employee StockPurchase Plan, or ESPP, basedon the estimated fair value
of the awardon the date of grant.We recognize the value of the portionof the award thatwe ultimately expect tovest as stock-based
compensation expense over the requisite service period inour consolidated statements of operations. We reduce stock-based
compensation expense for estimated forfeitures at the time of grant and revise in subsequent periods if actual forfeitures differ from
those estimates.
We use theBlack-Scholesmodel as ourmethodof valuingoption awards and stockpurchase rights under theESPP. On the
grant date, we use our stockprice and assumptions regarding a number of highly complex and subjective variables todetermine the
estimated fair value of stock-basedpayment awards. These variables include, but are not limited to, our expected stockprice volatility
over the termof the awards, and actual andprojected employee stockoption exercise behaviors. Option-pricingmodelswere
developed for use in estimating the value of tradedoptions that have novestingor hedging restrictions and are fully transferable.
Because our employee stockoptions have certain characteristics that are significantly different from traded options, and because
changes in the subjective assumptions canmaterially affect the estimated value, inmanagement’s opinion, the existingvaluation
modelsmaynot provide an accuratemeasure of the fair value of our employee stockoptions. Althoughwe determine the estimated
fair value of employee stockoptions using anoption-pricingmodel, that valuemaynot be indicative of the fair value observed in a
willingbuyer/willing sellermarket transaction.
We recognize compensation expense for option awards using the acceleratedmultiple-option approach. Under the accelerated
multiple-option approach (alsoknown as the graded-vestingmethod), an entity recognizes compensation expense over the requisite
service period for each separatelyvesting tranche of the award as though the awardwere in substancemultiple awards, which results
in the expense being front-loadedover the vestingperiod.
In2012, we begangrantingRSUs toour employees andour boardof directors. The fair value of RSUs is basedon the
market price of our common stockon the date of grant. RSUs vest annuallyover a four year period.
SeeNote 5,
Stockholders’ Equity,
for additional information regardingour share-based compensationplans.
Accumulatedother comprehensive income (loss)
Accumulatedother comprehensive income (loss) is comprisedof unrealizedgains and losses on investments, net of taxes,
and adjustmentswemade to reclassify realizedgains and losses on investments fromother accumulated comprehensive income (loss)
to our consolidated statement of operations. The following table summarizes changes in accumulated other comprehensive income
(loss) for the years endedDecember 31, 2013, 2012 and2011 (in thousands):
YearEndedDecember 31,
2013
2012
2011
Beginningbalance accumulatedother comprehensive income (loss) .................. $ 12,480 $
(770) $ 949
Other comprehensive income (loss) before reclassifications, net of tax (1) ....
10,253
13,250
(1,719)
Amounts reclassified from accumulated other comprehensive income (2) .....
(1,653)
—
—
Net current periodother comprehensive income (loss) .......................................
8,600
13,250
(1,719)
Endingbalance accumulatedother comprehensive income (loss) ....................... $ 21,080 $ 12,480 $ (770)
(1)
Other comprehensive income includes income tax expense of $5.9million and $9.1million for the years endedDecember 31,
2013 and2012, respectively.
(2)
Included ingainon investments, net onour consolidated statement of operations.
Convertible debt
InAugust 2012,we completed a $201.3millionofferingof convertible senior notes, whichmature in2019 andbear interest
at 2¾percent. InSeptember 2012, we used a substantial portionof the net proceeds from the issuance of the 2¾percent notes to
redeemour 2
5
/
8
percent convertible subordinatednotes. Consistentwithhowwe accounted for our 2
5
/
8
percent notes, we account for
our 2¾percent notes by separating the liability and equity components of the instrument in amanner that reflects our nonconvertible
debt borrowing rate. As a result, we assigned a value to the debt component of our 2¾percent notes equal to the estimated fair value
of similar debt instrumentswithout the conversion feature, which resulted in us recording the debt instrument at a discount. We are
amortizing the debt discount over the life of these 2¾percent notes as additional non-cash interest expense utilizing the effective
interestmethod. For additional information, seeNote 4,
Long-TermObligations andCommitments
.
