Note 2 - Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

2. Stock-Based Compensation — The Company has two stock option plans and an employee stock purchase plan—the 1998 Stock Option Plan, the 2004 Equity Incentive Plan and the 2004 Employee Stock Purchase Plan. The Company recognized stock-based compensation expenses for the three and nine months ended September 30, 2011 and 2010, as follows (in thousands):

	Three months ended September 30,					Nine months ended September 30,
	2011		2010			2011		2010
Non-Employee	$	2	$	(1	)	$	10	$	(11	)
ESPP		99		80			401		474
Restricted Stock		2,058		2,210			5,278		7,331
Stock Options		1,215		1,873			4,347		5,931
TOTAL	$	3,374	$	4,162		$	10,036	$	13,725

2004 Equity Incentive Plan

The Company’s Board of Directors adopted the Company’s 2004 Equity Incentive Plan in March 2004, and the Company’s stockholders approved it in November 2004. Options granted under the 2004 Plan have a maximum term of ten years. New hire grants generally vest over four years at the rate of 25 percent one year from the date of grant and 1/48th monthly thereafter. Refresh grants generally vest over four years at the rate of 50 percent two years from the date of grant and 1/48th monthly thereafter. There were 800,000 shares initially reserved for issuance under the 2004 Plan. The 2004 Plan provides for annual increases in the number of shares available for issuance beginning on January 1, 2005 equal to the least of: 5% of the outstanding shares of common stock on the first day of the year, 2,400,000 shares, or a number of shares determined by the Board of Directors. The following is a summary of the 2004 Plan, which includes stock options and restricted stock awards and units:

Available for Grant as of December 31, 2010	2,954,607
2011 Additions to Plan	1,753,151
2011 Grants	(859,180	)
2011 Cancellations	450,730
Available for Grant as of September 30, 2011	4,299,308

A summary of the status of the Company’s stock option plans at September 30, 2011 and changes during the nine months then ended is presented in the table below: 

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010 (4,264,268 options exercisable at a weighted-average exercise price of $13.33 per share)		5,835,118		$	14.61		4.30	$	19,035,591
Options granted (weighted-average fair value of $6.16 per share)		115,000		$	14.68
Options exercised		(645,529	)	$	6.71
Options forfeited and expired		(379,640	)	$	18.68
Outstanding at September 30, 2011		4,924,949		$	15.33		3.67	$	2,688,491
Options exercisable at September 30, 2011 and expected to become exercisable		4,749,616		$	15.25		3.63	$	2,688,491
Options vested and exercisable at September 30, 2011		4,140,950		$	14.95		3.45	$	2,688,491

The total fair value of options that vested during the three months ended September 30, 2011 and 2010 was $1.2 million and $1.9 million, respectively, and the total fair value of options that vested during the nine months ended September 30, 2011 and 2010 was $4.3 million and $6.0 million, respectively.  The total intrinsic value of options exercised during the three months ended September 30, 2011 and 2010 was $0.2 million and $1.0 million, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2011 and 2010 was $5.7 million and $16.8 million, respectively. Net cash proceeds from the exercise of stock options was $0.1 million for the three months ended September 30, 2011 and $1.5 million for the three months ended September 30, 2010. Net cash proceeds from the exercise of stock options was $4.3 million for the nine months ended September 30, 2011 and $13.3 million for the nine months ended September 30, 2010. At September 30, 2011, unamortized compensation expense related to unvested options was approximately $5.2 million, net of estimated forfeitures. The weighted average period over which compensation expense related to these options will be recognized is approximately 1.7 years.

The employee stock-based compensation expense recognized under Accounting Standards Codification (“ASC”) 718-10-30 Compensation – Stock Compensation –Overall - Initial Measurement, was determined using the Black-Scholes option pricing model. Option pricing models require the input of subjective assumptions and these assumptions can vary over time. The Company used the following weighted-average assumptions to determine the fair values of stock option awards granted during the three and nine months ended September 30, 2011 and 2010: 

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Expected term (years)		4.1			4.0			4.0			4.1
Expected volatility		52.3	%		55.2	%		52.8	%		56.0	%
Risk-free interest rate		1.1	%		1.4	%		1.3	%		1.8	%
Dividend yield		-			-			-			-

In estimating the expected term, the Company considers its historical stock option exercise experience, post vesting cancellations and remaining contractual term of the options outstanding. In estimating the expected volatility, the Company uses its own historical data to determine its estimated expected volatility. The Company uses the U.S. Treasury constant maturity yield based on the expected term for its risk-free interest rate and a dividend yield of zero as it does not issue dividends. The Company applies a forfeiture rate that is based on options that have been forfeited historically.

Restricted Stock

The Company grants restricted stock units, which vest generally over four years as determined by the Company’s Compensation Committee, and are issued upon vesting. Before vesting, these restricted stock units are not eligible for dividends, if and when declared. A summary of the restricted stock units is presented in the table below:

	Restricted Stock Units			Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Recognition Period (Years)
Outstanding at December 31, 2010		960,174		$	19.88		2.91
Awards granted		744,180			14.78
Awards released		(320,708	)		18.55
Awards forfeited		(71,090	)		19.42
Outstanding at September 30, 2011		1,312,556		$	17.34		2.84

The total fair value of restricted stock units that vested was $2.0 million for the three months ended September 30, 2011 and $1.5 million for the three months ended September 30, 2010. The total fair value of restricted stock units that vested was $6.6 million for the nine months ended September 30, 2011 and $4.2 million for the nine months ended September 30, 2010. The intrinsic value related to restricted stock units released for the three months ended September 30, 2011 and 2010 was $1.6 million and $1.2 million, respectively, and the intrinsic value related to restricted stock units released for the nine months ended September 30, 2011 and 2010 was $4.7 million and $3.7 million, respectively. The intrinsic value related to restricted stock units outstanding at September 30, 2011 and 2010 was $13.4 million and $16.1 million, respectively. At September 30, 2011, the unamortized compensation expense related to unvested restricted stock units was approximately $15.1 million, net of estimated forfeitures, with a weighted average remaining recognition period of 2.8 years.

On February 25, 2010, the Board granted 416,000 performance units to the Company’s executive officers. These performance units generally vest over four years, with a graded acceleration feature that allows all or a portion of these awards to be accelerated if certain performance conditions are satisfied. The amount of shares to be accelerated is based on achieving certain performance targets, with the minimal acceleration occurring if performance exceeds at least 110% of non-GAAP earnings per share as set forth in the Company’s annual operating plan approved by the Board, as determined by the Compensation Committee in its sole discretion. The Compensation Committee has the discretion not to accelerate any shares, if it so chooses, even if the performance targets are met. To date, none of the shares have been accelerated and it is too early to ascertain whether certain of the shares will be accelerated in 2011 and beyond.

2004 Employee Stock Purchase Plan

Under the 2004 Employee Stock Purchase Plan (the Purchase Plan), eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-month offering period or stock having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with the Internal Revenue Code and applicable Treasury Regulations. A total of 200,000 shares of common stock were reserved for issuance under the Purchase Plan.  The Purchase Plan provides for an automatic annual increase beginning on January 1, 2005 by an amount equal to the least of: 1,000,000 shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. For the three months ended September 30, 2011 and 2010, 79,296 shares and 57,147 shares, respectively, were issued under the Purchase Plan. For the nine months ended September 30, 2011 and 2010, 149,981 and 114,387 shares, respectively, were issued under the Purchase Plan. The following is a summary of the Purchase Plan and changes during the nine months ended September 30, 2011:

Available Shares as of December 31, 2010	3,141,931
2011 Additions to Plan	701,260
2011 Purchases	(149,981	)
Available Shares as of September 30, 2011	3,693,210

The Purchase Plan is considered compensatory under ASC 718-50-25, Compensation – Stock Compensation - Employee Share Purchase Plans - Recognition, and is accounted for in accordance with ASC 718-50-30 Compensation – Stock Compensation - Employee Share Purchase Plans - Initial Measurement - Look-Back Plans. The intrinsic value for stock purchased was $0.1 million for each of the three months ended September 30, 2011 and 2010. The intrinsic value for stock purchased was $0.3 million for each of the nine months ended September 30, 2011 and 2010. The unamortized expense as of September 30, 2011 was $0.2 million, which will be recognized over 0.4 years. The Black-Scholes option pricing model was used to value the employee stock purchase rights. For the three and nine months ended September 30, 2011 and 2010, the following weighted average assumptions were used in the valuation of the stock purchase rights:

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Expected term (years)		0.5			0.5			0.5			0.5
Expected volatility		40.9	%		37.9	%		39.2	%		39.5	%
Risk-free interest rate		0.1	%		0.2	%		0.1	%		0.2	%
Dividend yield		-			-			-			-

Cash proceeds from employee stock purchases for each of the three months ended September 30, 2011 and 2010 was $0.8 million. Cash proceeds from employee stock purchases for the nine months ended September 30, 2011 and 2010 was $1.8 million and $1.9 million, respectively.