NOTE 6: SHAREHOLDERS’ EQUITY AND EMPLOYEE BENEFIT PLANS

Common Stock and 401(k) Retirement Income Plan

The Company has a 401(k) retirement income plan (the “Plan”) for its employees. Historically, the Company’s matching contributions to the Plan were made in the form of issued and contributed shares of Company common stock; however, beginning January 2, 2011, matching contributions to the Plan are made in cash instead of stock. The Plan allows for employee contributions and matching Company contributions up to 4% or 6% of the employee’s contributed amount, based upon years of service.

The following table reflects the Company’s matching contributions to the Plan which were made in the form of issued and contributed shares of common stock or cash, as applicable, during fiscal 2011 and 2010:

	Fiscal
(in thousands)	2011		2010
Number of common shares		42		212
Fair value based upon market price at date of distribution	$	279	$	1,384
Cash	$	1,462		n/a

Accumulated Other Comprehensive Income

The following table reflects accumulated other comprehensive income reflected on the Consolidated Balance Sheets as of October 1, 2011 and October 2, 2010:

	As of
(in thousands)	October 1, 2011			October 2, 2010
Gain from foreign currency translation adjustments	$	2,789		$	1,767
Unrecognized actuarial gain (loss), Switzerland pension plan, net of tax		143			(588	)
Switzerland pension plan curtailment		(388	)		(388	)
Accumulated other comprehensive income	$	2,544		$	791

The following table reflects the components of comprehensive income for fiscal 2011 and 2010:

	Fiscal
(in thousands)	2011		2010
Net income	$	127,610	$	142,142
Gain from foreign currency translation adjustments		1,022		1,021
Unrecognized actuarial gain (loss), Switzerland pension plan, net of tax		731		(2,109	)
Other comprehensive income (loss)	$	1,753	$	(1,088	)
Comprehensive income	$	129,363	$	141,054

Equity-Based Compensation

As of October 1, 2011, the Company had seven equity-based employee compensation plans (the “Employee Plan”) and three director compensation plans (the “Director Plans”) (collectively, the “Plans”). Under these Plans, market-based share awards (collectively, “market-based restricted stock”), time-based share awards (collectively, “time-based restricted stock”), performance-based share awards (collectively, “performance-based restricted stock”), stock options or common stock have been granted at 100% of the market price of the Company’s common stock on the date of grant. As of October 1, 2011, the Company’s one active plan, the 2009 Equity Plan, had 6.4 million shares of common stock available for grant to its employees and directors.

Market-based restricted stock entitles the employee to receive common shares of the Company on the award vesting date, if market performance objectives which measure relative total shareholder return (“TSR”) are attained. Relative TSR is calculated based upon the 90-calendar day average price of the Company’s stock as compared to specific peer companies that comprise the Philadelphia Semiconductor Index. TSR is measured for the Company and each peer company over a performance period, which is generally three years. Vesting percentages range from 0% to 200% of awards granted. The provisions of the market-based restricted stock are reflected in the grant date fair value of the award; therefore, compensation expense is recognized regardless of whether or not the market condition is ultimately satisfied. Compensation expense is reversed if the award is forfeited prior to the vesting date.

In general, stock options and time-based restricted stock awarded to employees vest annually over a three year period provided the employee remains employed. The Company follows the non-substantive vesting method for stock options and recognizes compensation expense immediately for awards granted to retirement eligible employees, or over the period from the grant date to the date retirement eligibility is achieved.

Performance-based restricted stock entitles the employee to receive common shares of the Company on the three-year anniversary of the grant date (if employed by the Company) if return on invested capital and revenue growth targets set by the Management Development and Compensation Committee of the Board of Directors on the date of grant are met. If return on invested capital and revenue growth targets are not met, performance-based restricted stock does not vest.

Equity-based compensation expense recognized in the Consolidated Statements of Operations for fiscal 2011, 2010 and 2009 was based upon awards ultimately expected to vest. In accordance with ASC 718, forfeitures have been estimated at the time of grant and were based upon historical experience. The Company reviews the forfeiture rates periodically and makes adjustments as necessary.

The following tables reflect equity-based compensation expense (reversal of expense), which includes restricted stock, stock options and common stock, by expense category and by type of award for fiscal 2011, 2010 and 2009:

	Fiscal
(in thousands)	2011		2010		2009
Cost of sales	$	213	$	207	$	64
Selling, general and administrative (1)		5,671		5,846		649
Research and development		1,328		1,512		674
Total equity-based compensation expense	$	7,212	$	7,565	$	1,387

	Fiscal
(in thousands)	2011		2010		2009
Market-based restricted stock (1)	$	1,961	$	1,996	$	-
Time-based restricted stock		4,003		2,161		672
Performance-based restricted stock (1) (2)		442		2,029		(1,546	)
Stock options		86		659		1,721
Common stock		720		720		540
Total equity-based compensation expense	$	7,212	$	7,565	$	1,387

(1) Fiscal 2011 SG&A expense included $0.9 million ($0.8 million market-based and $0.1 million performance-based) of liability classified equity compensation expense related to the retired CEO. Fiscal 2010 SG&A expense included $1.2 million ($0.9 million market-based and $0.3 million performance-based) of liability classified equity compensation expense related to the retired CEO. In connection with his retirement, deferred cash payments equal to the difference, if any, between (i) the fair market value of the shares of common stock of the Company to which he would have been entitled pursuant to the performance share unit awards granted to him in fiscal 2008 and 2009 had he remained employed through June 30, 2011 and (ii) the fair market value of the shares of common stock of the Company actually received by him pursuant to such awards. In July 2011, $1.7 million was paid as a deferred cash payment. An additional deferred cash payment, if any, will be paid in February 2012. An accrual for estimated deferred cash payments measured at fair value as of October 1, 2011 and October 2, 2010 were included within accrued expenses and other current liabilities and other liabilities on the Consolidated Balance Sheets.

(2) As the global economy improved from prior year levels during fiscal 2010, the Company determined performance objectives for the performance-based restricted stock issued in fiscal 2008 and 2007 would improve. Accordingly, estimated attainment percentages increased and total compensation expense for the performance-based restricted stock also increased during fiscal 2010. During fiscal 2009, in connection with the global economic decline, the Company determined performance objectives for the performance-based restricted stock issued in fiscal 2008 and 2007 would not be attained at the previous estimated levels.

Equity-Based Compensation: employee market-based restricted stock

The following table reflects employee market-based restricted stock activity for fiscal 2011 and 2010:

	Number of shares (in thousands)			Unrecognized compensation expense (in thousands)		Average remaining service period (in years)		Weighted average grant date fair value per share
Market-based restricted stock outstanding as of October 3, 2009		-
Granted		398						$	6.78
Forfeited or expired		(84	)
Market-based restricted stock outstanding as of October 2, 2010		314		$	667		1.3
Granted		442						$	11.32
Forfeited or expired		(165	)
Vested		(104	)
Market-based restricted stock outstanding as of October 1, 2011		487		$	3,674		1.9

Equity-Based Compensation: employee time-based restricted stock

The following table reflects employee time-based restricted stock activity for fiscal 2011, 2010 and 2009:

	Number of shares (in thousands)			Unrecognized compensation expense (in thousands)		Average remaining service period (in years)		Weighted average grant date fair value per share
Time-based restricted stock outstanding as of September 27, 2008		-
Granted		825						$	3.53
Forfeited or expired		(126	)
Time-based restricted stock outstanding as of October 3, 2009		699		$	1,356		2.0
Granted		1,288						$	5.46
Forfeited or expired		(48	)
Vested		(232	)
Time-based restricted stock outstanding as of October 2, 2010		1,707		$	5,683		1.4
Granted		714						$	6.56
Forfeited or expired		(259	)
Vested		(563	)
Time-based restricted stock outstanding as of October 1, 2011		1,599		$	6,096		1.7

Equity-Based Compensation: employee performance-based restricted stock

No performance-based restricted stock was issued during fiscal 2011 or 2010.

The following table reflects the assumptions used to calculate compensation expense related to the Company’s performance-based restricted stock issued during fiscal 2009:

Assumptions as of October 2, 2010:
Expected forfeiture rate	8.8	%
Estimated attainment of performance goals	85.0	%

Assumptions as of October 3, 2009:
Expected forfeiture rate	4.4	%
Estimated attainment of performance goals	30.0	%

The following table reflects employee performance-based restricted stock activity for fiscal 2011, 2010, and 2009:

	Number of shares (in thousands)			Unrecognized compensation expense (in thousands)		Average remaining service period (in years)

Performance-based restricted stock outstanding as of September 27, 2008		947		$	2,186		1.8
Granted		402
Forfeited		(336	)
Performance-based restricted stock outstanding as of October 3, 2009		1,013			242		1.8
Forfeited or expired		(387	)
Performance-based restricted stock outstanding as of October 2, 2010		626			228		0.2
Forfeited or expired		(275	)
Vested		(182	)
Performance-based restricted stock outstanding as of October 1, 2011 *		169		$	-		-

* Shares vested October 8, 2011.

Equity-Based Compensation: employee stock options

No employee stock options were granted during fiscal 2011. The following table reflects the weighted-average assumptions for the Black-Scholes option pricing model used to estimate the fair value of stock options granted for fiscal 2010 and 2009:

	Fiscal
	2010			2009
Expected dividend yield	N/A			N/A
Expected stock price volatility		61.64	%		51.18	%
Risk-free interest rate		2.22	%		2.70	%
Expected life (in years)		5			5
Weighted-average fair value at grant date	$	3.18		$	1.61

Expected volatility for 2010 and 2009 was based on historical volatility. The risk-free interest rate was calculated using the U.S. Treasury yield curves in effect at the time of grant, commensurate with the expected life of the options.

The following table reflects employee stock option activity for fiscal 2011, 2010, and 2009:

	Number of shares (in thousands)			Weighted average exercise price		Average remaining contractual life (in years)		Aggregate intrinsic value (in thousands)
Options outstanding as of September 27, 2008		6,441		$	9.71
Granted		160			3.41
Exercised		(156	)		2.95			$	9
Forfeited or expired		(1,904	)		10.09
Options outstanding as of October 3, 2009		4,541			9.56
Granted		47			6.20
Exercised		(492	)		5.72				1,261
Forfeited or expired		(786	)		10.90
Options outstanding as of October 2, 2010		3,310			9.80
Granted		-			-
Exercised		(1,216	)		7.50				3,498
Forfeited or expired		(585	)		13.79
Options outstanding as of October 1, 2011		1,509		$	10.11		3.3	$	336
Options vested and expected to vest as of October 1, 2011		1,491		$	10.16		3.2	$	302
Options exercisable as of October 1, 2011		1,465		$	10.24		3.1
In the money exercisable options as of October 1, 2011		345						$	251

On average, 16% of stock options granted by the Company become vested each year, and on average, 18% of stock options granted by the Company are forfeited each year. Intrinsic value of stock options exercised is determined by calculating the difference between the market value of the Company’s stock price at the time an option is exercised and the exercise price, multiplied by the number of shares. The intrinsic value of stock options outstanding and stock options exercisable is determined by calculating the difference between the Company’s closing stock price on the last trading day of fiscal 2011 and the exercise price of in-the-money stock options, multiplied by the number of underlying shares. During fiscal 2011, the Company received $9.3 million in cash from the exercise of employee and non-employee director stock options.

As of October 1, 2011, total unrecognized compensation cost related to unvested employee stock options was $0.1 million, which will be amortized over the weighted average remaining service period of approximately 1 year.

The following table reflects outstanding and exercisable employee stock options as of October 1, 2011:

	Options Outstanding						Options Exercisable
Range of exercise prices	Options outstanding (in thousands)		Weighted average remaining contractual life (in years)		Weighted average exercise price		Options exercisable (in thousands)		Weighted average exercise price
$2.95 or less		30		1.8	$	2.75		26	$	2.95
$3.06 - $7.08		54		7.7		5.61		21		5.64
$7.14 - $7.31		297		3.1		7.14		297		7.14
$7.89 - $8.74		476		5.6		8.62		469		8.62
$9.64 - $10.07		36		0.3		10.05		36		10.05
$12.05 - $16.12		616		1.4		13.45		616		13.45
		1,509		3.1	$	10.11		1,465	$	10.24

Equity-Based Compensation: non-employee directors

The 2009 Equity Plan provides for the grant of common shares to each non-employee director upon initial election to the board and on the first business day of each calendar quarter while serving on the board. The grant to a non-employee director upon initial election to the board, and each quarterly grant, is that number of common shares closest in value to, without exceeding, $30,000. For the second, third and fourth quarters of fiscal 2009, in light of the Company’s historically low stock price, the non-employee directors reduced their quarterly stock grant to be that number of common shares closest in value to, without exceeding $20,000. This was restored to the $30,000 level for fiscal 2011 and 2010.

The following table reflects shares of common stock issued to non-employee directors and the corresponding fair value for fiscal 2011, 2010 and 2009:

	Fiscal
(in thousands)	2011		2010		2009
Number of commons shares issued		89		114		181
Fair value based upon market price at time of issue	$	720	$	720	$	540

The following table reflects non-employee director stock option activity for fiscal 2011, 2010, and 2009:

	Number of shares (in thousands)			Weighted average exercise price		Average remaining contractual life (in years)		Aggregate intrinsic value (in thousands)
Options outstanding as of September 27, 2008		478		$	14.89
Forfeited or expired		(60	)		12.69
Options outstanding as of October 3, 2009		418			15.21
Exercised		(10	)		5.53			$	21
Forfeited or expired		(60	)		39.75
Options outstanding as of October 2, 2010		348			11.25
Exercised		(30	)		6.16				170
Forfeited or expired		(60	)		11.50
Options outstanding as of October 1, 2011		258		$	11.78		2.1	$	78
Options vested and expected to vest as of October 1, 2011		258		$	11.78		2.1	$	78
Options exercisable as of October 1, 2011		258		$	11.78		2.1
In the money exercisable options as of October 1, 2011		258							78

No non-employee director stock options were granted during fiscal 2011, 2010, or 2009.

Pension Plans

The following table reflects the Company’s pension obligations and pension expense as of and for fiscal 2011, 2010 and 2009:

	As of
(in thousands)	October 1, 2011		October 2, 2010
Switzerland pension obligation	$	3,871	$	3,390
Taiwan pension obligation		1,299		1,269
Total pension obligation	$	5,170	$	4,659

	Fiscal
(in thousands)	2011		2010		2009
Switzerland pension expense	$	1,226	$	583	$	581
Tawain pension expense		100		1,969		-
Total pension expense	$	1,326	$	2,552	$	581

In accordance with regulations in Switzerland, the Company sponsors a Switzerland pension plan covering active employees whose minimum benefits are guaranteed. During fiscal 2011, the Company announced the intention to reduce its Switzerland workforce by approximately 50 employees, which triggered a curtailment of the Switzerland pension plan under ASC No. 715, Topic 30, Compensation – Retirement Benefits, Defined Benefit Plans. As a result, the Company expects to recognize a pretax curtailment and settlement gain of approximately $1.6 million during the first quarter of fiscal 2012. In addition, during fiscal 2009, the Company reduced its Switzerland workforce by approximately 70 employees, which triggered a curtailment of the Switzerland pension plan under ASC No. 715. As a result during fiscal 2009, the Company recognized a pretax curtailment and settlement gain of $1.4 million.

Fiscal 2010 pension expense included a charge driven by a current year increase in the Company’s pension obligation due to higher current year compensation and retirement of certain sales representatives in Taiwan. In accordance with regulations in Taiwan, the Company sponsors a Taiwan defined-benefit retirement plan covering regular employees hired prior to July 1, 2005. An employee may apply for voluntary retirement under certain specified situations.

Other Plans

Some of the Company’s other foreign subsidiaries have retirement plans that are integrated with and supplement the benefits provided by laws of the various countries. These other plans are not required to report nor do they determine the actuarial present value of accumulated benefits or net assets available for plan benefits.