Note 7 - Stock-Based Compensation

12 Months Ended

Dec. 31, 2014

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

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

7.  STOCK-BASED COMPENSATION

2004 Equity Incentive Plan (the “2004 Plan”)

The Board of Directors adopted the 2004 Plan in March 2004, and the stockholders approved it in November 2004. The 2004 Plan provided for annual increases in the number of shares available for issuance equal to the least of 5% of the outstanding shares of common stock on the first day of the year, 2.4 million shares, or a number of shares determined by the Board of Directors. The 2004 Plan expired on November 12, 2014 and equity awards can no longer be granted under the 2004 Plan. As of November 12, 2014, 2.9 million shares that were available for issuance expired under the 2004 Plan.

2014 Equity Incentive Plan (the “2014 Plan”)

The Board of Directors adopted the 2014 Plan in April 2013, and the stockholders approved it in June 2013. The 2014 Plan became effective on November 13, 2014. The 2014 Plan provides for the issuance of up to 5.5 million shares and will expire on November 13, 2024. As of December 31, 2014, 5.5 million shares remained available for future issuance.

Stock-Based Compensation Expense

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

	Year Ended December 31,
	2014		2013		2012
Cost of revenue	$	903	$	631	$	510
Research and development		9,019		6,219		6,922
Selling, general and administrative		23,532		13,851		11,220
Tax benefit		-		-		(187	)
Total	$	33,454	$	20,701	$	18,465

Equity Award Modifications

In connection with a special cash dividend declared and paid in December 2012, the Board of Directors approved an equity award modification whereby the number of shares of each option outstanding as of December 28, 2012 was increased by a ratio of 1.0471 and the exercise price was reduced by the same ratio. Consequently, the Company granted an additional 171,000 shares. This modification was permissible pursuant to the Company’s 2004 Plan and resulted in an incremental compensation cost of $2.9 million, of which $2.8 million was recognized during the fourth quarter of 2012. The remaining $0.1 million is being recognized over the remaining vesting period of the awards. The Company used the Black-Scholes model to determine the fair value of the additional option awards with the following weighted-average assumptions: expected term of 1.9 years, expected volatility of 41.0%, risk-free interest rate of 0.3% and dividend yield of 0.0%.

In addition, in connection with the special cash dividend, the Board of Directors approved an equity award modification whereby for each unvested restricted stock unit (“RSU”) as of December 28, 2012, the holder would receive 1.0471 shares upon vesting of the original awards granted. Consequently, the Company granted an additional 74,000 shares. This modification was permissible pursuant to the Company’s 2004 Plan and resulted in an incremental compensation cost of $1.5 million, which is being recognized over the remaining vesting period of the awards. The fair value of the additional RSUs was based on the grant date share price.

RSUs

The Company’s 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
	(in thousands)					(in thousands)					(in thousands)				(in thousands)
Outstanding at January 1, 2012		1,082		$	16.00		217		$	20.73		-	$	-		1,299		$	16.87
Modification (1)		(76	)	$	15.69		76		$	15.69		-	$	-		-		$	-
Granted (2)(3)		617		$	18.69		963		$	18.24		-	$	-		1,580		$	18.42
Performance adjustment (4)		-		$	-		(624	)	$	18.19		-	$	-		(624	)	$	18.19
Released		(447	)	$	17.30		(97	)	$	20.73		-	$	-		(544	)	$	17.91
Forfeited		(77	)	$	16.61		(4	)	$	19.07		-	$	-		(81	)	$	16.74
Outstanding at December 31, 2012		1,099		$	16.96		531		$	18.49		-	$	-		1,630		$	17.46
Granted (3)		299		$	24.25		875		$	24.43		1,800	$	23.57		2,974		$	23.89
Performance adjustment (4)		-		$	-		(124	)	$	21.98		-	$	-		(124	)	$	21.98
Released		(519	)	$	17.57		(206	)	$	18.90		-	$	-		(725	)	$	17.95
Forfeited		(125	)	$	17.06		(48	)	$	19.06		-	$	-		(173	)	$	17.61
Outstanding at December 31, 2013		754		$	19.41		1,028		$	23.02		1,800	$	23.57		3,582		$	22.53
Granted (3)(5)		335		$	36.71		1,091		$	34.23		-	$	-		1,426		$	34.82
Performance adjustment (4)		-		$	-		(139	)	$	31.40		-	$	-		(139	)	$	31.40
Released		(468	)	$	20.36		(304	)	$	18.12		-	$	-		(772	)	$	19.48
Forfeited		(32	)	$	19.75		(17	)	$	19.79		-	$	-		(49	)	$	19.77
Outstanding at December 31, 2014		589		$	28.48		1,659		$	28.11		1,800	$	23.57		4,048		$	26.14

 _________________

(1) See “2011 and 2012 CEO Awards” below for further discussion.

(2) Amount includes 74,000 shares granted as a result of the equity award modification. See “Equity Award Modifications” above for further discussion.

(3) Amount reflects the maximum number of PSUs that can be earned assuming the achievement of the highest level of performance conditions.

(4) Amount reflects the number of PSUs that have not been earned or may not be earned based on management’s probability assessment.

(5) Amount does not include 674,000 shares of time-based RSUs and PSUs authorized by the Board of Directors in October 2014, as the grant date of these awards has not been established at the time of approval. See “2014 Time-Based RSUs and PSUs” below for further discussion.

The intrinsic value related to awards released for the years ended December 31, 2014, 2013 and 2012 was $28.9 million, $18.6 million and $10.5 million, respectively. As of December 31, 2014, the total intrinsic value of outstanding awards was $201.3 million, based on the closing stock price of $49.74. As of December 31, 2014, unamortized compensation expense related to outstanding awards was approximately $73.6 million with a weighted-average remaining recognition period of approximately six years.

2014 Time-Based RSUs and PSUs:

In February 2014, the Board of Directors granted 336,000 shares to executive officers. These grants included 84,000 shares of time-based RSUs which vest over two years on a quarterly basis, and 252,000 shares of 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 the employees’ continued employment with the Company.

In April 2014, the Board of Directors granted 139,000 shares to 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 2015 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 the employees’ continued employment with the Company.

In connection with the acquisition of 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 2 for further discussion.

In October 2014, the Board of Directors approved 212,000 shares of PSUs to executive officers with a two-year performance period that will begin in 2015.  In addition, the Board of Directors approved 358,000 shares of PSUs to non-executive employees with five consecutive two-year performance periods that will begin in 2015 and end in 2020.  The performance metrics for all of the PSUs will be defined by the Board of Directors at the inception of each performance period. The shares were reserved from the 2004 Plan prior to its expiration in November 2014. The shares will be subject to adjustments at the discretion of the Board of Directors at the inception of each performance period. The Company will determine the grant date fair value of these awards and begin recognizing the related expense when the performance metrics are approved by the Board of Directors and the awards are communicated to the employees at the inception of each performance period.

In October 2014, the Board of Directors approved 104,000 shares of time-based RSUs to non-executive employees with vesting period that will begin in 2015. The shares were reserved from the 2004 Plan prior to its expiration in November 2014.  The Company will determine the grant date fair value of these awards and begin recognizing the related expense when the awards are communicated to the employees in 2015.

2013 MSUs:

In December 2013, the Board of Directors granted 360,000 shares to the executive officers and certain key employees. The MSUs represent the right to receive a maximum of 1.8 million shares that can be earned upon achievement of five pre-determined MPS stock price hurdles from January 1, 2014 to December 31, 2018 (“2013 MSUs”). The 2013 MSUs that meet the pre-determined stock price hurdles from January 1, 2014 to December 31, 2018 will vest quarterly from January 1, 2019 to December 31, 2023, subject to the employees’ continued employment with the Company. In 2014, the Company achieved three price hurdles, and the Compensation Committee approved an additional 720,000 shares to the employees.

The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: grant date stock price of $31.73, expected volatility of 38.69%, risk-free interest rate of 1.6% and dividend yield of 0.0%. Stock-based compensation expense for the 2013 MSUs is not reversed if the pre-determined stock price hurdles are not satisfied.

2013 Time-Based RSUs and PSUs:

In February 2013, the Board of Directors granted 294,000 shares to the executive officers. These grants included 74,000 shares of time-based RSUs which vested over two years on a quarterly basis, and 220,000 shares of PSUs which represented a target number of RSUs that would be awarded upon achievement of certain pre-determined revenue targets in 2014 (“2013 Executive PSUs”). The maximum number of 2013 Executive PSUs that an executive officer could receive was 300% of the target shares. In February 2015, the Compensation Committee approved the revenue achievement for the 2013 Executive PSUs and an additional 402,000 shares were awarded to the executive officers. Half of the 2013 Executive PSUs vested in February 2015 and the remaining shares vest over the following two years on a quarterly basis. The vesting is subject to the employees’ continued employment with the Company.

In February 2013, the Board of Directors granted 215,000 shares to non-executive employees. These grants included 124,000 shares of time-based RSUs which vest over four years on a quarterly or annual basis, and 91,000 shares of PSUs which represented a target number of RSUs that would be awarded upon achievement of certain pre-determined revenue targets for the Company as a whole, certain regions or product-line divisions in 2014 (“2013 Non-Executive PSUs”). The maximum number of 2013 Non-Executive PSUs an employee could receive was either 200% or 300% of the target shares, depending on the job classifications of the employees. In February 2015, the Compensation Committee approved the revenue achievement for the 2013 Non-Executive PSUs and an additional 63,000 shares were awarded to the employees. Half of the 2013 Non-Executive PSUs vested in February 2015 and the remaining shares vest over the following two years on a quarterly or annual basis. The vesting is subject to the employees’ continued employment with the Company.

 2012 Time-Based RSUs and PSUs:

In February 2012, the Board of Directors granted 413,000 shares to the executive officers. These grants included 206,500 shares of time-based RSUs which vested over two years on a quarterly basis, and 206,500 shares of PSUs which represented a target number of RSUs that would be awarded upon achievement of certain pre-determined revenue targets in 2013 (“2012 Executive PSUs”). The maximum number of 2012 Executive PSUs that an executive officer could receive was 300% of the target shares. In February 2014, the Compensation Committee approved the revenue achievement for the 2012 Executive PSUs and an additional 139,000 shares were awarded to the executive officers. Half of the 2012 Executive PSUs vested in February 2014 and the remaining shares vest over the following two years on a quarterly basis. The vesting is subject to the employees’ continued employment with the Company.

In April 2012, the Board granted 345,000 shares to non-executive employees. These grants included 220,000 shares of time-based RSUs which vest over four years on a quarterly or annual basis, and 125,000 shares of PSUs which represented a target number of shares that would be awarded upon achievement of certain pre-determined revenue targets for the Company as a whole, certain regions or product-line divisions in 2013 (“2012 Non-Executive PSUs”). The maximum number of shares an employee could receive was either 200% or 300% of the target shares, depending on the job classifications of the employees. In April 2014, the Compensation Committee approved the revenue achievement for the 2012 Non-Executive PSUs and an additional 30,000 shares were awarded to the employees. Half of the 2012 Non-Executive PSUs vested in the second quarter of 2014 and the remaining shares vest over the following two years on a quarterly or annual basis. The vesting is subject to the employees’ continued employment with the Company.

2011 and 2012 CEO Awards:

In February 2011, the Board of Directors granted 153,000 shares of time-based RSUs to the CEO. In February 2012, the Board of Directors approved the modification of half of the time-based RSUs to PSUs (“2012 CEO PSUs”). The time-based RSUs that were not modified vested over two years on a quarterly basis from February 2011 to February 2013. The 2012 CEO PSUs would vest upon achievement of the pre-determined performance goals based on the Company’s 2012 revenue and the CEO’s continued employment. The maximum number of 2012 CEO PSUs that could be released was 100% of the target shares. In February 2013, the Compensation Committee determined that the pre-determined performance goals were met and the 2012 CEO PSUs were released in February 2013.  

Stock Options 

A summary of the stock options activities is presented in the table below:

	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)					(in years)		(in thousands)
Outstanding at January 1, 2012		4,863		$	15.31		3.4	$	8,817
Options granted (1)		178		$	15.63
Options exercised		(1,152	)	$	11.62
Options forfeited and expired		(76	)	$	20.90
Outstanding at December 31, 2012		3,813		$	15.62		2.6	$	25,380
Options exercised		(2,446	)	$	15.49
Options forfeited and expired		(11	)	$	15.27
Outstanding at December 31, 2013		1,356		$	15.86		1.9	$	25,506
Options exercised		(742	)	$	16.09
Options forfeited and expired		(24	)	$	10.07
Outstanding at December 31, 2014		590		$	15.80		1.2	$	20,039
Options exercisable at December 31, 2014 and expected to vest		590		$	15.80		1.2	$	20,026
Options exercisable at December 31, 2014		568		$	15.92		1.2	$	19,221

_______________________  

(1) Includes 171,000 options granted as a result of the equity award modification. See “Equity Award Modifications” above for further discussion.

The following table summarizes certain information related to outstanding and exercisable options as of December 31, 2014:

		Options Outstanding						Options Exercisable
Range of Exercises Prices		Shares		Weighted- Average Remaining Contractual Term		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
		(in thousands)		(in years)				(in thousands)
$	0.76 - $14.96		118		2.0	$	12.16		98	$	12.07
$	15.03 - $15.03		321		0.8	$	15.03		321	$	15.03
$	15.13 - $23.50		151		1.6	$	20.29		149	$	20.36
			590		1.2	$	15.80		568	$	15.92

Total intrinsic value of options exercised was $17.3 million, $27.8 million and $10.0 million for the years ended December 31, 2014, 2013 and 2012, respectively. The net cash proceeds from the exercise of stock options were $11.9 million, $37.9 million and $13.4 million for the years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014, unamortized compensation expense related to unvested options was approximately $0.1 million with a weighted-average remaining recognition period of less than one year.

The grant date fair value of stock options was determined using the Black-Scholes model with the following assumptions (excluding the options modification discussed above): 

	Year Ended
	December 31, 2012
Expected term (years)		4.1
Expected volatility		53.4	%
Risk-free interest rate		0.6	%
Dividend yield		-

 Employee Stock Purchase Plan

Under the 2004 Employee Stock Purchase Plan (the “ESPP”), 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.  The ESPP provides for an annual increase by an amount equal to the least of 1.0 million 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 years ended December 31, 2014, 2013 and 2012, 78,000, 111,000 and 152,000 shares, respectively, were issued under the ESPP. As of December 31, 2014, approximately 4.7 million shares were available for future issuance.

The intrinsic value for stock purchased was $0.9 million, $0.8 million and $1.0 million for the years ended December 31, 2014, 2013 and 2012, respectively. The unamortized expense as of December 31, 2014 was $0.1 million, which will be recognized by the first quarter of 2015. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:

	Year Ended December 31,
	2014			2013			2012
Expected term (years)		0.5			0.5			0.5
Expected volatility		29.4	%		28.0	%		45.8	%
Risk-free interest rate		0.1	%		0.1	%		0.1	%
Dividend yield		0.7	%		-			-

Cash proceeds from the ESPP were $2.1 million, $2.1 million and $1.9 million for the years ended December 31, 2014, 2013 and 2012, respectively.