Note 2 - Stock-Based Compensation

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

2. STOCK-BASED COMPENSATION

Stock Plans

As of September 30, 2014, approximately 4.4 million shares were available for future issuance under the 2004 Equity Incentive Plan (the “2004 Plan”). The 2004 Plan will expire on November 12, 2014. 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 Company’s Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”) in April 2013, and the Company’s stockholders approved it in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The 2014 Plan will become effective on November 13, 2014, the day after the 2004 Plan expires. The 2014 Plan provides for the issuance of up to 5,500,000 shares and will expire on November 13, 2024.

Stock-Based Compensation Expense

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

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014		2013			2014		2013
Cost of revenue	$	246	$	163		$	669	$	465
Research and development		2,388		1,491			6,638		4,557
Selling, general and administrative		6,225		3,577			17,565		10,059
Tax benefit		-		(80	)		-		(175	)
Total stock-based compensation expense	$	8,859	$	5,151		$	24,872	$	14,906

Restricted Stock

The Company’s restricted stock units (“RSUs”) include time-based RSUs, performance-based RSUs (“PSUs”) and market-based RSUs (“MSUs”). A summary of the RSUs is presented in the table below:

	Time-Based RSUs			Weighted- Average Grant Date Fair Value Per Share		PSUs					Weighted- Average Grant Date Fair Value Per Share	MSUs		Weighted- Average Grant Date Fair Value Per Share		Total			Weighted- Average Grant Date Fair Value Per Share
Outstanding at January 1, 2014		754,306		$	19.41		1,027,782			$	23.02		1,800,000	$	23.57		3,582,088		$	22.53
Awards granted		312,697			36.52		1,091,001		(1)		34.23		-		-		1,403,698			34.74
Performance adjustment		-			-		(141,626	)	(2)		31.54		-		-		(141,626	)		31.54
Awards released		(378,142	)		19.76		(276,512	)			18.12		-		-		(654,654	)		19.07
Awards forfeited		(24,039	)		19.81		(17,097	)			19.79		-		-		(41,136	)		19.80
Outstanding at September 30, 2014		664,822			27.25		1,683,548				27.87		1,800,000		23.57		4,148,370			25.90

(1) The number of PSUs granted reflects the maximum number of shares that can ultimately be earned assuming the achievement of the highest level of performance conditions under the programs.

(2) The performance adjustment reflects the number of PSUs that have not been earned or may not ultimately be earned based on management’s probability assessment.

The intrinsic value related to awards released for the three months ended September 30, 2014 and 2013 was $5.3 million and $3.2 million, respectively. The intrinsic value related to awards released for the nine months ended September 30, 2014 and 2013 was $23.8 million and $14.8 million, respectively. As of September 30, 2014, the total intrinsic value of outstanding awards was $182.7 million, based on the closing stock price of $44.05. As of September 30, 2014, unamortized compensation expense related to outstanding awards was approximately $79.5 million with a weighted-average remaining recognition period of approximately six years.

2014 PSUs and Time-Based RSUs:

In February 2014, the Board of Directors granted 336,000 shares to the Company’s executive officers. These grants included 25% time-based RSUs which vest over two years on a quarterly basis, and 75% PSUs which represent a target number of RSUs to be awarded based on the Company’s achievement of an average two-year (2014 and 2015) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as determined by the Semiconductor Industry Association (“2014 Executive PSUs”). The maximum number of 2014 Executive PSUs that an executive officer can ultimately earn is 300% of the target shares. Half of the 2014 Executive PSUs will vest in February 2016 if the pre-determined performance goals are met and approved by the Compensation Committee. The remaining shares will vest over the following two years on a quarterly basis. The vesting is subject to continued employment with the Company.

In April 2014, the Board of Directors granted 139,000 shares to the Company’s non-executive employees. These grants included 78,000 shares of time-based RSUs which vest over four years on an annual or quarterly basis, and 61,000 shares of PSUs which represent a target number of RSUs to be awarded based on the Company’s achievement of revenue goals for certain regions or product line divisions, or the Company’s achievement of an average two-year (2014 and 2015) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as determined by the Semiconductor Industry Association (“2014 Non-Executive PSUs”). The maximum number of 2014 Non-Executive PSUs that an employee can ultimately earn is either 200% or 300% of the target shares, depending on the job classifications of the employees. Half of the 2014 Non-Executive PSUs will vest in the second quarter of 2016 if the pre-determined performance goals are met and approved by the Compensation Committee. The remaining shares will vest over the following two years on an annual or quarterly basis. The vesting is subject to continued employment with the Company.

Based on the Company’s revenue forecast as of September 30, 2014, the Company has determined that it is probable that it will be able to achieve or exceed the pre-determined revenue targets set for the 2014 Executive PSUs and the majority of the 2014 Non-Executive PSUs. The Company continues to evaluate the expected performance against the pre-determined goals and will adjust stock-based compensation expense based on this assessment accordingly.

In connection with the acquisition of Sensima Technology SA (“Sensima”) in July 2014, the Board of Directors granted time-based RSUs and PSUs to key Sensima employees who became employees of the Company. See Note 3 for further discussion.

Stock Options

A summary of the stock options activities 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, 2014		1,356,446		$	15.86		1.9	$	25,505,753
Options exercised		(638,018	)		16.30
Options forfeited and expired		(8,397	)		11.22
Outstanding at September 30, 2014		710,031			15.51		1.3		20,265,815
Options exercisable at September 30, 2014 and expected to vest		709,524			15.52		1.3		20,245,815
Options exercisable at September 30, 2014		677,985			15.63		1.2		19,268,944

Total intrinsic value of options exercised was $2.3 million and $11.3 million for the three months ended September 30, 2014 and 2013, respectively. Total intrinsic value of options exercised was $14.1 million and $22.2 million for the nine months ended September 30, 2014 and 2013, respectively. The net cash proceeds from the exercise of stock options were $10.4 million and $32.7 million for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, unamortized compensation expense related to unvested options was approximately $0.2 million with a weighted-average remaining recognition period of approximately one year.

Employee Stock Purchase Plan (“ESPP”)

For the three months ended September 30, 2014 and 2013, 34,000 and 46,000 shares, respectively, were issued under the ESPP. For the nine months ended September 30, 2014 and 2013, 78,000 and 111,000 shares, respectively, were issued under the ESPP. As of September 30, 2014, 4.7 million shares were available for future issuance.

The intrinsic value of stock purchased was $0.5 million and $0.3 million for the three months ended September 30, 2014 and 2013, respectively. The intrinsic value of stock purchased was $0.9 million and $0.8 million for the nine months ended September 30, 2014 and 2013, respectively. As of September 30, 2014, the unamortized expense was $0.2 million, which will be recognized through the first quarter of 2015. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Expected term (years)		0.5			0.5			0.5			0.5
Expected volatility		25.1	%		27.5	%		29.5	%		28.0	%
Risk-free interest rate		0.1	%		0.1	%		0.1	%		0.1	%
Dividend yield		1.4	%		-			0.7	%		-

Cash proceeds from employee stock purchases were $2.1 million for both the nine months ended September 30, 2014 and 2013.