Note 18 - Equity Incentive Plans and Employee Benefits

12 Months Ended

Feb. 01, 2014

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

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

18.          Equity incentive plans and employee benefits

Stock incentive plans

We have adopted equity incentive plans that provide for the grant of stock awards to employees, directors and consultants that are designed to encourage and reward their long-term contributions to us and provide an incentive for them to remain with us.  These plans also align our employees’ interest with the creation of long-term shareholder value.  As of February 1, 2014, we have four stock option plans: the 2003 Director Stock Option Plan (the “2003 Director Plan”), the 2001 Stock Plan (the “2001 Plan”), the Amended and Restated 2009 Stock Incentive Plan (the “2009 Incentive Plan”) and the CopperGate Share Option Plan (the “CopperGate Plan”).  The 2009 Incentive Plan was approved by our shareholders in July 2009 along with the approval of a one-time stock option exchange program and on July 8, 2011, by shareholder approval, was amended and restated to increase the number of shares of common stock authorized for issuance by 2,000,000.  The CopperGate Plan was assumed by us in connection with the acquisition of CopperGate in November 2009.

Our 2009 Incentive Plan provides for the grant of stock options, restricted stock, restricted stock units, and other stock-related and performance awards that may be settled in cash, stock or other property.  In July 2009, 2,900,000 shares of common stock were reserved for issuance and in July 2011 an additional 2,000,000 shares were reserved for issuance under the 2009 Incentive Plan.  In addition, up to 1,000,000 shares of common stock subject to stock awards outstanding under the 2001 Plan but terminated prior to exercise and would otherwise be returned to the share reserves under our 2001 Plan may become available for issuance under the 2009 Incentive Plan.  

As of February 1, 2014, 1,978,874 shares were available for future grants under our stock incentive plans.  Additionally, up to 648,106 shares of common stock subject to stock awards outstanding under the 2001 Plan may become available for issuance under the 2009 Incentive Plan.  As of September 23, 2009, the 2001 Plan and the 2003 Director Plan were closed for future grants, however, these plans will continue to govern all outstanding options that we originally granted from each plan.

Stock Options

The total stock option activities and balances of our stock option plans are summarized as follows:

	Number of Options Outstanding			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
As of January 29, 2011		6,084,125		$	12.26		6.9
Granted (Weighted average fair value of $5.26)		532,800			10.22
Cancelled		(479,119	)		11.87
Exercised		(291,779	)		5.14
As of January 28, 2012		5,846,027			12.47		6.2
Granted (Weighted average fair value of $2.77)		205,000			5.77
Cancelled		(848,930	)		12.35
Exercised		(146,310	)		2.60
As of February 2, 2013		5,055,787			12.50		4.9
Granted (Weighted average fair value of $2.36)		690,423			5.39
Cancelled		(1,631,375	)		12.78
Exercised		(20,214	)		2.64
As of February 1, 2014		4,094,621		$	11.24		4.8	$	67,124
Ending vested and expected to vest		4,062,314		$	11.28		4.8	$	67,124
Ending exercisable		2,989,653		$	12.79		4.1	$	33,456

The aggregate intrinsic value, as of February 1, 2014, in the table above represents the total pretax intrinsic value, based on our closing stock price of $4.69 on that date which would have been received by the option holders had all options holders exercised their options as of that date.  The aggregate exercise date intrinsic value of options that were exercised under our stock plans during fiscal 2014, 2013 and 2012 were less than $0.1 million, $0.5 million and $1.6 million, respectively, determined as of the exercise date.  The total fair value of options which vested during fiscal 2014, 2013 and 2012 was $4.1 million, $7.2 million and $10.5 million, respectively.

The options outstanding and currently exercisable as of February 1, 2014 were in the following exercise price ranges:

Options Outstanding and Exercisable
Range of Exercise Prices			Number Oustanding as of 2/1/14		Weighted Average Remaining Contractual Term		Weighted Average Exercise Price		Number Exercisable as of 2/1/14		Weighted Average Exercise Price
$0.92	-	$4.98		667,796		6.79	$	5.37		9,373	$	1.12
$5.43	-	$7.86		387,434		6.69	$	6.12		207,888	$	6.19
$7.89	-	$10.59		678,722		4.52	$	9.86		590,823	$	9.76
$10.87	-	$10.87		356,500		4.53	$	10.87		356,400	$	10.87
$11.06	-	$11.06		386,447		2.46	$	11.06		386,447	$	11.06
$11.07	-	$11.09		570,884		5.20	$	11.08		501,325	$	11.08
$11.40	-	$12.02		392,070		3.99	$	11.60		326,062	$	11.56
$12.08	-	$15.91		419,793		3.48	$	14.25		377,627	$	14.23
$16.25	-	$41.58		184,975		3.80	$	32.82		183,708	$	32.93
$45.83	-	$45.83		50,000		3.76	$	45.83		50,000	$	45.83
				4,094,621		4.80	$	11.24		2,989,653	$	12.79

As of February 1, 2014, the unrecorded stock-based compensation balance related to stock options outstanding excluding estimated forfeitures was $3.2 million and will be recognized over an estimated weighted average amortization period of 1.7 years.  The amortization period is based on the expected remaining vesting term of the options.

Restricted Stock Awards

RSAs are granted under our 2009 Incentive Plan and reduce shares available to grant under the plan by 1.3 shares for every 1 share of restricted stock granted and consist of time-based restricted shares, which shares are subject to forfeiture until vested if length of service requirements are not met. These RSAs vest over one to five years according to the terms specified in the individual grants.  As of February 1, 2014, the unrecognized stock-based compensation balance related to RSAs outstanding excluding estimated forfeitures was $0.7 million and will be recognized over an estimated weighted average amortization period of 1.8 years.  The following table sets forth the shares of restricted stock awards outstanding as of February 1, 2014:

	Restricted Stock Awards			Weighted Average Grant Date Fair Value per Award		Aggregate Value
As of January 29, 2011		85,137		$	13.39	$	1,139,984
Granted		163,070			6.91
Vested		(17,028	)		13.39
As of January 28, 2012		231,179			8.82		2,038,473
Granted		10,980			6.83
Vested		(78,848	)		8.77
As of February 2, 2013		163,311			8.71		1,422,439
Granted		-			-
Cancelled/forfeited		(13,175	)		9.50
Vested		(61,758	)		8.49
As of February 1, 2014		88,378		$	8.75	$	773,308

Restricted Stock Units

We value restricted stock units, or RSUs, using the quoted market price of the underlying stock on the date of grant.  RSUs are granted under our 2009 Incentive Plan and reduce shares available to grant under the plan by 1.3 shares for every 1 restricted stock unit granted and consist of time-based restricted stock units.  The RSUs granted under this plan vest over a period of four years according to the terms specified in the individual grants.  As of February 1, 2014, the unrecognized stock-based compensation balance related to RSUs outstanding excluding estimated forfeitures was $2.3 million and will be recognized over an estimated weighted average amortization period of 2.0 years.  

The following table sets forth the shares of RSUs outstanding as of February 1, 2014:

	Restricted Stock Units			Weighted Average Grant Date Fair Value per Unit		Aggregate Value
As of January 29, 2011		-		$	-	$	-
Granted		597,500			6.52
Cancelled/forfeited		(50,000	)		6.64
As of January 28, 2012		547,500			6.51		3,566,040
Granted		313,003			6.03
Vested		(118,766	)		6.51
Cancelled/forfeited		(109,475	)		6.45
As of February 2, 2013		632,262			6.28		3,972,964
Granted		213,886			4.99
Vested		(210,720	)		6.11
Cancelled/forfeited		(166,921	)		6.26
As of February 1, 2014		468,507		$	5.78	$	2,707,970

Employee stock purchase plan

In July 2010, our shareholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”).  A total of 2,500,000 shares were reserved for issuance under the 2010 Purchase Plan which replaced the 2001 Purchase Plan as of January 1, 2011.  The 2010 Purchase Plan is implemented by offerings of rights to eligible employees.  Each offering will be in such form and will contain such terms and conditions as our Board or a committee thereof will deem appropriate, subject to compliance with applicable regulations.  The provisions of separate offerings need not be identical.  Under the terms of the offerings that have commenced to date under the 2010 Purchase Plan, eligible employees may authorize payroll deductions of up to 15% of their regular base salaries to purchase common stock at 85% of the fair market value of our common stock at the beginning or end of the six-month offering period, whichever is lower.  The maximum number of shares that can be purchased in any single offering period is limited under the terms of the offering, including a limitation that an eligible employee cannot purchase in any single offering period more than 1,500 shares of common stock, as adjusted in accordance with the terms of the 2010 Purchase Plan.  These terms will automatically apply to future offerings under the 2010 Purchase Plan unless modified by the Board or a committee thereof.

During fiscal 2014, 2013 and 2012, 618,670, 887,723 and 682,451 shares of our common stock were purchased at an average price of $4.16, $4.72 and $5.68 per share, respectively.  As of February 1, 2014, we had granted 2,188,844 of the 2,500,000 shares of common stock reserved for issuance under the 2010 Purchase Plan.  

Valuation of stock-based compensation

The fair value of RSA and RSU awards is based on the quoted market price of the underlying stock at the date of grant.  The fair value of stock option and employee stock purchase plan right awards is estimated at the grant date using the Black-Scholes option pricing model.  The determination of fair value of stock option and employee stock purchase plan right awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.  These variables include, but are not limited to, our expected stock price volatility over the term of the awards and actual employee stock option exercise behavior.

The fair value of each stock option and employee stock purchase plan right was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Fiscal Years Ended
Stock options	February 1, 2014			February 2, 2013			January 28, 2012
Expected volatility		46.91	%		51.31	%		52.01	%
Risk-free interest rate		1.44	%		0.92	%		1.60	%
Expected term (in years)		5.18			5.87			5.94
Dividend yield		0	%		0	%		0	%
Weighted average fair value at grant date	$	2.36		$	2.77		$	5.27

	Fiscal Years Ended
Employee stock purchase plan	February 1, 2014			February 2, 2013			January 28, 2012
Expected volatility		38.92	%		37.84	%		46.03	%
Risk-free interest rate		0.10	%		0.13	%		0.08	%
Expected term (in years)		0.50			0.49			0.49
Dividend yield		0	%		0	%		0	%
Weighted average fair value at grant date	$	1.27		$	1.47		$	1.85

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new stock option and employee stock purchase plan right awards is based on the historical volatility of our stock price, measured over a period equal to the expected term of the grants or purchase rights.  The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term.  The expected term of stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based payment awards and vesting schedules.  The expected term of employee stock purchase rights is the period of time remaining in the current offering period.  The dividend yield assumption is based on our history of not paying dividends and assumption that we will not pay dividends in the future.

The following table sets forth the total stock-based compensation expense that is included in each functional line item in the consolidated statements of operations (in thousands):

	Fiscal Years Ended
	February 1, 2014		February 2, 2013		January 28, 2012
Cost of revenue	$	267	$	487	$	478
Research and development		3,381		5,740		6,277
Sales and marketing		1,275		1,811		2,137
General and administrative		1,891		2,557		3,133
Total stock-based compensation	$	6,814	$	10,595	$	12,025

Non-employee related stock-based compensation

We record stock-based compensation expense for options issued to non-employees based on the fair value of the options as estimated in the period they vest, using the Black-Scholes option pricing model.  There were no stock options granted to non-employees during fiscal 2014, 2013, and 2012. The Black-Scholes option pricing model for fiscal 2012 includes the following weighted average assumptions; expected stock price volatility of 54.0%, weighted average contractual term of 5.0 years, dividend yield of zero percent and risk-free interest rates of 1.13%.  Total non-employee stock-based compensation recorded during fiscal 2014, 2013, and 2012 was zero, zero and $2,000, respectively.

Shares reserved for future issuance

We had the following shares of common stock reserved for future issuance upon exercise or issuance of equity instruments at February 1, 2014:

	Shares Reserved
Stock options outstanding		4,094,621
Authorized for future grants under stock incentive plans		1,978,874
Authorized for future issuance under stock purchase plans		311,156
Restricted stock units outstanding		468,507
Shares reserved for future issuance		6,853,158

401(k) tax deferred savings plan

We maintain a 401(k) tax deferred savings plan for the benefit of qualified employees who are U.S. based.  Under the 401(k) tax deferred savings plan, U.S. based employees may elect to reduce their current annual taxable compensation up to the statutorily prescribed limit, which is $17,500 in calendar year 2013.  Employees age 50 or over may elect to contribute an additional $5,500.  Through December 1, 2012, we sponsored a matching contribution program whereby we match contributions made by each employee at a rate of $0.25 per $1.00 contributed.  The matching program was suspended effective December 1, 2012. The matching contributions we made to the 401(k) tax deferred savings plan totaled zero, $0.8 million and $0.8 million for fiscal 2014, 2013 and 2012, respectively.

Endowment insurance pension plan

Related to our acquisition of our DTV business in the second quarter of fiscal 2013, we added operations in Shanghai, China.  It is required by the “Procedures of Shanghai Municipality on Endowment Insurance for Town Employees” to provide pension insurance for Shanghai employees.  The plan is managed by the local authority and it is a mandatory plan.  Under the current plan, the employee will contribute 8.0% of the annual base to the plan and the employer will match 21% of the annual base.  For calendar year 2013, the annual base is capped at RMB 14,076 per employee.  During fiscal 2014 and 2013, we made matching contributions of $2.1 million and $1.1 million, respectively.

Retirement pension plans

We maintain a Retirement Pension Plan for the benefit of qualified employees who are based in Denmark.  Under the Retirement Pension Plan, Denmark based employees may elect to reduce their annual taxable compensation up to their annual salary.  We have a discretionary matching contribution program whereby we contribute 4.5% of our employee’s annual salary.  During fiscal 2014, 2013 and 2012, we made matching contributions of $0.2 million, $0.2 million and $0.2 million, respectively.

We contribute to a government managed labor pension fund for the benefit of qualified employees who are based in Taiwan.  Under this plan, Taiwan based employees may elect to reduce their current annual taxable compensation up to 6% of their annual salary and we are required to match 6% of their annual salary. During fiscal 2014, 2013 and 2012, we made matching contribution of $0.1 million, $0.1 million and $0.1 million, respectively.

Related to our acquisition of our DTV business in the second quarter of fiscal 2013, we added operations in Waalre, The Netherlands. We maintain a retirement pension plan for the benefit of qualified employees who are employed by Sigma Designs Netherlands. Under the current plan, employees contribute 1.7% of their annual pensionable salary to the plan and we match 22% of their annual pensionable salary.  During fiscal 2014 and 2013, we made matching contributions of $0.4 million and $0.2 million to this plan, respectively.

Related to our acquisition of our DTV business in the second quarter of fiscal 2013, we added operations in Freiburg, Germany. We maintain a retirement pension plan for the benefit of qualified employees who are employed by Sigma Designs Germany. Under the current plan, we have a discretionary matching contribution program whereby we contribute 4% of our employees' annual salary.  During fiscal 2014 and 2013, we made less than $0.1 million and zero matching contributions to this plan, respectively.

Severance plan

We maintain a severance plan for several Israeli employees pursuant to Israel's Severance Pay Law based on the most recent salary of the employees multiplied by the number of years of employment.  Upon termination of employment, employees are entitled to one month salary for each year of employment or a portion thereof.  As of February 1, 2014, we have an accrued severance liability of $1.2 million partially offset by $1.2 million of severance employee funds.

Employee termination benefits

Termination benefits are payable when an employee is involuntarily terminated, or whenever an employee accepts voluntary termination in exchange for termination benefits. For the accounting treatment and timing recognition of involuntarily termination benefits, we distinguish between one-time termination benefit arrangements and ongoing termination benefit arrangements. A one-time termination benefit arrangement is established by a termination plan and applies to a specified termination event. One-time involuntary termination benefits are recognized as a liability when the termination plan meets certain criteria and has been communicated to employees. If employees are required to render future service in order to receive these one-time termination benefits, the liability is recognized ratably over the future service period. Termination benefits other than one-time termination benefits are termination benefits for which the communication criterion is not met but that are committed to by management, or termination obligations that are not specifically determined in a new and single plan. These termination benefits include all legal, contractual and past practice termination obligations to be paid to employees in case of involuntary termination. These termination benefits are accrued for when commitment creates a present obligation to our employees for the benefits expected to be paid, when it is probable that employees will be entitled to the benefits and the amount can be reasonably estimated.  As discussed in Note 15, during fiscal 2014 and 2013, we adopted restructuring plans resulting in employee termination costs of $1.7 million and $2.2 million, which are recorded in restructuring costs in the accompanying consolidated statements of operations for fiscal 2014 and 2013, respectively.