Note 2 - Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Policy Text Block [Abstract]

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

2. Stock-Based Compensation

The Company recognized stock-based compensation expenses as follows (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Non-employee	$	-	$	6	$	-	$	11
Employee stock purchase plan		139		179		331		390
Restricted stock		4,772		2,881		8,906		5,061
Stock options		279		763		613		1,682
	$	5,190	$	3,829	$	9,850	$	7,144

The income tax benefit for stock-based compensation expenses was $48,000 and $11,000 for the three months ended June 30, 2013 and 2012, respectively. The income tax benefit for stock-based compensation expenses was $95,000 and $113,000 for the six months ended June 30, 2013 and 2012, respectively.

2014 Equity Incentive Plan

The Company’s Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”) in April 2013, and the Company’s stockholders approved the 2014 Plan at the Company’s Annual Meeting of Stockholders in June 2013. The 2014 Plan will become effective on November 13, 2014, the day after the 2004 Equity Incentive Plan (the “2004 Plan”) expires. Once the 2004 Plan expires, the Company will no longer be able to grant equity awards under the 2004 Plan, and any shares otherwise remaining available for future grants under the 2004 Plan will no longer be available for issuance. The 2014 Plan provides for the issuance of up to 5,500,000 shares and will expire on November 13, 2024.

2004 Equity Incentive Plan

The following is a summary of the 2004 Plan, which includes stock options, restricted stock units (“RSUs”) and performance share units (“PSUs”):

Available for grant as of January 1, 2013	4,957,244
Additions to plan	1,783,664
Grants	(561,928	)
Performance awards adjustment (1)	(173,265	)
Cancellations	108,274
Available for grant as of June 30, 2013	6,113,989

_____________________

(1) The performance awards adjustment reflects the change in management’s probability assessment as of June 30, 2013 of the number of PSUs that will ultimately vest. See “Restricted Stock” section for details.

Restricted Stock

A summary of the RSUs and PSUs is presented in the table below:

	RSU's			Weighted Average Grant Date Fair Value Per Share		PSUs			Weighted Average Grant Date Fair Value Per Share		Total			Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Recognition Period (Years)
Outstanding at January 1, 2013		1,098,563		$	16.96		531,185		$	18.49		1,629,748		$	17.46		2.18
Awards granted		250,388			23.72		311,540			24.35		561,928			24.07
Performance awards adjustment (1)		-			-		173,265			18.05		173,265			18.05
Awards released		(281,080	)		17.18		(206,409	)		18.90		(487,489	)		17.91
Awards forfeited		(72,505	)		16.59		(28,888	)		17.99		(101,393	)		16.99
Outstanding at June 30, 2013		995,366		$	18.63		780,693		$	20.64		1,776,059		$	19.51		2.09

 _____________________

  (1) The performance awards adjustment reflects the change in management’s probability assessment as of June 30, 2013 of the number of PSUs that will ultimately vest.

The intrinsic value related to restricted stock released for the three months ended June 30, 2013 and 2012 was $2.9 million and $2.4 million, respectively. The intrinsic value related to restricted stock released for the six months ended June 30, 2013 and 2012 was $11.5 million and $4.4 million, respectively. The total intrinsic value of restricted stock outstanding at June 30, 2013 and December 31, 2012 was $42.8 million and $36.3 million, respectively. At June 30, 2013, unamortized compensation expense related to unvested restricted stock was approximately $24.3 million, with a weighted-average remaining recognition period of 2.1 years.

2010 PSU Awards:

On February 25, 2010, the Board granted 416,000 PSUs to the Company’s executive officers (“2010 Executive PSUs”). These performance units generally vested over four years, with a graded acceleration feature that allowed all or a portion of these awards to be accelerated if certain performance conditions were satisfied. The number of shares to be accelerated was based on achieving certain performance targets as set forth in the Company’s annual operating plan approved by the Board, as determined by the Compensation Committee in its sole discretion.  In February 2013, the Compensation Committee determined that the pre-determined performance goals for the 2010 Executive PSUs were met and therefore accelerated the vesting of the remaining awards in February 2013.  As of June 30, 2013, there were no unvested or unreleased 2010 Executive PSUs.

2011 CEO Awards:

The Company granted 153,000 time-based RSUs to its CEO on February 8, 2011. In the fourth quarter of 2011, the Compensation Committee proposed modifying half of the time-based RSUs to PSUs and on February 7, 2012, the Board approved the performance goals based on the Company’s 2012 revenue (“2012 Modification”). The time-based RSUs that were not modified vested over two years on a quarterly basis from February 2011 to February 2013. The PSUs vested upon achievement of the pre-determined performance goals and the CEO’s continued employment. The maximum number of PSUs the CEO may receive was 100% of the RSUs originally granted. In February 2013, the Compensation Committee determined that the pre-determined performance goals for the 2012 Modification were met and therefore the PSUs were released in February 2013.  As of June 30, 2013, there were no unvested or unreleased 2011 CEO Awards.

2012 RSU and PSU Awards:

On February 14, 2012, the Board granted 413,000 awards to the Company’s executive officers. 50% of the RSUs granted to Company’s executive officers vest over two years on a quarterly basis and 50% of the units represent a target number of RSUs awarded upon achievement of certain  goals (“2012 Executive PSUs”) for the Company’s revenue in 2013. Half of the 2012 Executive PSUs will vest if the pre-determined performance goals are met and the employee is employed by the Company when the Compensation Committee approves the release of the shares. The remainder vests over the following two years on a quarterly basis. The maximum number of 2012 Executive PSUs that can be released to an executive employee is 300% of the PSUs originally granted. The PSUs earned will be reduced by a maximum of 15% in the event that the Company’s total shareholder return (“TSR”), defined as the cumulative change in share price plus dividends, as compared to the Company’s compensation peer group, is below a specified percentile for calendar years 2012 and 2013.

Based on the Company’s revenue forecast as of June 30, 2013, the Company has determined that it is probable that it will be able to exceed the pre-determined performance goals. Stock-based compensation for the PSUs expected to meet the pre-determined goals is determined based on grant date fair value adjusted for expected forfeiture rate and is being amortized over the requisite service period of each separate vesting tranche. The Company continues to evaluate expected performance against the pre-determined goals and will adjust stock-based compensation expense accordingly.

On April 24, 2012, the Company granted 344,650 awards to its existing non-executive employees. These grants include 219,317 time-based RSUs, which generally vest over two years on a quarterly basis, and 125,333 PSUs. The PSUs will be a target number of shares awarded upon achievement of a pre-determined revenue target for the Company as a whole, certain regions or product-line divisions in 2013 (“2012 Non-Executive PSUs”). Half of the 2012 Non-Executive PSUs will vest if the pre-determined performance goals are met and the employee is employed by the Company when the Compensation Committee approves the release of the shares.  The remainder vests over the following two years on a quarterly basis. The maximum number of shares an employee may receive is 300% of the PSUs originally granted.

Based on the Company’s revenue forecast as of June 30, 2013, the Company has determined that it is probable that it will be able to achieve or exceed the pre-determined performance goals such that the majority of the 2012 Non-Executive PSUs will vest. Stock-based compensation for the PSUs expected to meet the pre-determined goals is determined based on grant date fair value adjusted for expected forfeiture rate and is being amortized over the requisite service period of each separate vesting tranche. The Company continues to evaluate expected performance against the pre-determined goals and will adjust stock-based compensation expense accordingly.

2013 RSU and PSU Awards:

On February 5, 2013, the Board granted 293,760 awards to the Company’s executive officers. 25% of the RSUs granted to Company’s executive officers vest over two years on a quarterly basis and 75% of the units represents a target number of RSUs awarded upon achievement of certain  goals (“2013 Executive PSUs”) for the Company’s revenue in 2014. Half of the 2013 Executive PSUs will vest if the pre-determined performance goals are met and the employee is employed by the Company when the Compensation Committee approves the release of the shares. The remainder vests over the following two years on a quarterly basis. The maximum number of 2013 Executive PSUs that can be released to an executive employee is 300% of the PSUs originally granted.

On February 5, 2013, the Company granted 215,433 awards to its existing non-executive employees. These grants include 124,211 time-based RSUs, which generally vest over two years on a quarterly basis, and 91,222 PSUs. The PSUs will be a target number of shares awarded upon achievement of a pre-determined revenue target for the Company as a whole, certain regions or product-line divisions in 2014 (“2013 Non-Executive PSUs”). Half of the 2013 Non-Executive PSUs will vest if the pre-determined performance goals are met and the employee is employed by the Company when the Compensation Committee approves the release of the shares.  The remainder vest over the following two years on a quarterly basis. The maximum number of shares an employee may receive is 300% of the PSUs originally granted.

Based on the Company’s 2014 revenue forecast as of June 30, 2013, the Company has determined that it is probable that it will be able to achieve the pre-determined performance goals such that 100% of the 2013 Executive PSUs and the 2013 Non-Executive PSUs will vest. Stock-based compensation for the PSUs expected to meet the pre-determined goals is determined based on grant date fair value adjusted for expected forfeiture rate and is being amortized over the requisite service period of each separate vesting tranche. The Company continues to evaluate expected performance against the pre-determined goals and will adjust stock-based compensation expense accordingly.

Stock Options

A summary of the status of the Company’s stock option plans during the six months ended June 30, 2013 is presented in the table below: 

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2013 (3,603,762 options exercisable at a weighted-average exercise price of $15.59 per share)		3,813,361		$	15.62		2.56	$	25,379,573
Options granted		-			-
Options exercised		(1,110,102	)		14.58
Options forfeited and expired		(6,881	)		19.31
Outstanding at June 30, 2013		2,696,378		$	16.04		2.14	$	21,804,890
Options exercisable at June 30, 2013 and expected to become exercisable		2,690,171		$	16.04		2.13	$	21,741,742
Options vested and exercisable at June 30, 2013		2,564,933		$	16.08		2.01	$	20,644,282

Total intrinsic value of options exercised was $5.4 million and $2.8 million for the three months ended June 30, 2013 and 2012, respectively. Total intrinsic value of options exercised was $10.9 million and $5.5 million for the six months ended June 30, 2013 and 2012, respectively. The net cash proceeds from the exercise of stock options were $6.3 million and $3.4 million for the three months ended June 30, 2013 and 2012, respectively. The net cash proceeds from the exercise of stock options were $16.2 million and $7.3 million for the six months ended June 30, 2013 and 2012, respectively. At June 30, 2013, unamortized compensation expense related to unvested options was approximately $0.9 million. The weighted average period over which compensation expense related to these unvested options will be recognized is approximately 1.7 years.

The Company used the following weighted-average assumptions to determine the fair value of the options awards:

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Expected term (years)		4.1			3.8			4.0			4.1
Expected volatility		50.0	%		53.4	%		51.0	%		53.4	%
Risk-free interest rate		0.7	%		0.6	%		0.7	%		0.6	%
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 yield for its risk-free interest rate and a dividend yield of zero as the Company generally has not paid dividends. The cash dividend paid in December 2012 was a special dividend. The Company applies a forfeiture rate that is based on options that have been forfeited historically.

Employee Stock Purchase Plan

No shares were issued under the 2004 Employee Stock Purchase Plan (the “ESPP”) for the three months ended June 30, 2013 and 2012. For the six months ended June 30, 2013 and 2012, 65,247 and 97,247 shares, respectively, were issued under the ESPP. The following is a summary of the ESPP and changes during the six months ended June 30, 2013:

Available shares as of January 1, 2013	4,217,960
Additions to plan	713,466
Purchases	(65,247	)
Available shares as of June 30, 2013	4,866,179

The intrinsic value of stock purchased was $0.5 million and $0.7 million for the six months ended June 30, 2013 and 2012, respectively. The unamortized expense as of June 30, 2013 was $69,000, which will be recognized over two months. The Black-Scholes option pricing model was used to value the employee stock purchase rights. For six months ended June 30, 2013 and 2012, the following assumptions were used in the valuation:

	Six months ended June 30,
	2013			2012
Expected term (years)		0.5			0.5
Expected volatility		28.5	%		50.7	%
Risk-free interest rate		0.1	%		0.1	%
Dividend yield		-			-

Cash proceeds from employee stock purchases for the six months ended June 30, 2013 and 2012 were $1.2 million and $1.0 million, respectively.