Note 7 - Stockholders' Equity

6 Months Ended

Jun. 30, 2012

Shareholders' Equity and Share-based Payments [Text Block]

7. STOCKHOLDERS’ EQUITY

Stock-based compensation is estimated at the grant date based on the award’s fair value and is recognized on a straight-line basis over the vesting periods of the applicable stock purchase rights and stock options, generally four years. Stock-based compensation expenses before taxes related to the Company’s stock plans and employee stock purchase plan were allocated as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Cost of design-to-silicon yield-solutions	$	432	$	522	$	751	$	990
Research and development		251		337		438		680
Selling, general and administrative		636		614		1,035		924
Stock-based compensation expenses	$	1,319	$	1,473	$	2,224	$	2,594

The Company estimated the fair value of share-based awards granted during the period using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions, resulting in the following weighted average fair values:

Stock Plans:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Expected life (in years)		4.87			4.97			4.84			4.94
Volatility		59.5	%		60.8	%		59.6	%		61.0	%
Risk-free interest rate		0.78	%		1.64	%		0.78	%		1.66	%
Expected dividend		—			—			—			—
Weighted average fair value per share of options granted during the period	$	4.32		$	3.21		$	4.21		$	3.17

Employee Stock Purchase Plan:

	Six Months Ended June 30,
	2012			2011
Expected life (in years)		1.25			1.25
Volatility		51.1	%		47.2	%
Risk-free interest rate		0.16	%		0.38	%
Expected dividend		—			—
Weighted average fair value of purchase rights granted under the purchase plan	$	2.33		$	2.06

The Company issued no shares under the Employee Stock Purchase Plan in the three months ended June 30, 2012 and 2011.

On June 30, 2012, the Company has in effect the following stock-based compensation plans:

Stock Plans —

At the annual meeting of stockholders on November 16, 2011, the Company’s stockholders approved the 2011 Stock Incentive Plan (the “2011 Plan”). Under the 2011 Plan, the Company may award stock options, stock appreciation rights, stock grants or stock units covering shares of the Company's common stock to employees, directors, non-employee directors and contractors. The aggregate number of shares reserved for awards under this plan is 3,200,000 shares, plus up to 3,500,000 shares previously issued under the 2001 Plan that are forfeited or repurchased by the Company or shares subject to awards previously issued under the 2001 Plan that expire or that terminate without having been exercised or settled in full. In case of awards other than options or stock appreciation rights, the aggregate number of shares reserved under the plan will be decreased at a rate of 1.33 shares issued pursuant to such awards. The exercise price for stock options must generally be at prices no less than the fair market value at the date of grant. Stock options generally expire ten years from the date of grant and become vested and exercisable over a four-year period.

In 2001, the Company adopted a 2001 Stock Plan (the “2001 Plan”). In 2003, in connection with its acquisition of IDS Systems Inc., the Company assumed IDS’ 2001 Stock Option / Stock Issuance Plan (the “IDS Plan”).  Both of the 2001 and the IDS Plans expired in 2011.  Stock options granted under the 2001 and IDS Plans generally expire ten years from the date of grant and become vested and exercisable over a four-year period. Although no new awards may be granted under the 2001 or IDS Plans, awards made under the 2001 and IDS Plans that are currently outstanding remain subject to the terms of each such plan.

As of June 30, 2012, the Company has authorized 6.7 million shares of common stock for issuance and exercise of options, of which 5.1 million shares are available for grant. As of June 30, 2012, there were no outstanding options that had been granted outside of the 2011, 2001 or the IDS Plans (collectively, the “Stock Plans”).

Stock option activity under the Company’s Stock Plans during the six months ended June 30, 2012 was as follows:

	Number of Options (in thousands)			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding, January 1, 2012		3,872		$	5.91
Granted		1,085			8.52
Exercised		(199	)		4.41
Canceled		(135	)		6.16
Expired		(22	)		7.78
Outstanding, June 30, 2012		4,601			6.58		7.35	$	15,994
Vested and expected to vest, June 30, 2012		4,221			6.53		7.18	$	14,955
Exercisable, June 30, 2012		2,196			6.55		5.58	$	8,138

The aggregate intrinsic value in the table above represents the total intrinsic value based on the Company’s closing stock price of $9.87 per share as of June 30, 2012, which would have been received by the option holders had all “in-the-money” option holders exercised their options as of that date. The total intrinsic value of options exercised during the six months ended June 30, 2012 was $768,000.

As of June 30, 2012, there was $6.6 million of total unrecognized compensation cost related to unvested stock options. That cost is expected to be recognized over a weighted average period of 3.1 years. The total fair value of shares vested during the three months and six months ended June 30, 2012 was $0.6 million and $1.1 million, respectively.

Nonvested restricted stock units activity during the six months ended June 30, 2012 was as follows:

	Shares (in thousands)			Weighted Average Grant Date Fair Value Per Share
Nonvested, January 1, 2012		303		$	7.82
Granted		339			8.71
Vested		(78	)		9.88
Forfeited		(21	)		7.74
Nonvested, June 30, 2012		543			8.08

As of June 30, 2012, there was $3.4 million of total unrecognized compensation cost related to nonvested restricted stock units. That cost is expected to be recognized over a weighted average period of 3.2 years. The total compensation expense related to shares vested during the six months ended June 30, 2012 was $0.8 million.

Employee Stock Purchase Plan — In July 2001, the Company adopted a ten-year Employee Stock Purchase Plan (“Purchase Plan”) under which eligible employees can contribute up to 10% of their compensation, as defined in the Purchase Plan, towards the purchase of shares of PDF common stock at a price of 85% of the lower of the fair market value at the beginning of the offering period or the end of the purchase period. The Purchase Plan consists of twenty-four-month offering periods with four six-month purchase periods in each offering period. Under the Purchase Plan, on January 1 of each year, starting with 2002, the number of shares reserved for issuance will automatically increase by the lesser of (1) 675,000 shares, (2) 2% of the Company’s outstanding common stock on the last day of the immediately preceding year, or (3) the number of shares determined by the board of directors. At the annual meeting of stockholders on May 18, 2010, the Company’s stockholders approved an amendment to the Purchase Plan to extend it through May 17, 2020.  As of June 30, 2012, 1.6 million shares were available for future issuance under the Purchase Plan.

Stock Repurchase Program — On October 29, 2007, the Board of Directors adopted a program to repurchase up to $10.0 million of the Company’s common stock on the open market. The initial program was for three years, but on October 19, 2010, the Board of Directors authorized an extension of, and an increase in, the program and the aggregate amount available to repurchase between October 19, 2010 and October 29, 2012 was reset to an additional $10.0 million of the Company’s common stock. As of June 30, 2012, 3.6 million shares had been repurchased at the average price of $4.19 per share under this program and $4.2 million remained available for future repurchases.