Shareholders' Equity | Note 12 — Shareholders’ Equity Common and Preferred Stock As of January 30, 2016, the Company is authorized to issue 992.0 million shares of $0.002 par value common stock and 8.0 million shares of $0.002 par value preferred stock. As of January 30, 2016 and January 31, 2015, no shares of preferred stock were outstanding. 1995 Stock Option Plan In April 1995, the Company adopted the 1995 Stock Option Plan (the “Option Plan”). The Option Plan, as amended from time to time, had 383.4 million common shares reserved for issuance thereunder as of January 30, 2016. Options granted under the Option Plan generally have a term of 10 years and generally must be issued at prices equal to the fair market value of the stock on the date of grant. Incentive stock options granted to shareholders who own greater than 10% of the outstanding stock at the time of the grant may not have a term exceeding five years and these options must be issued at prices of at least 110% of the fair market value of the stock on the date of grant. Equity awards to new hires under the Option Plan generally vest 20% one year after the vesting commencement date and the remaining shares vest one-sixtieth per month over the remaining 48 months. Other equity awards generally vest annually in four equal installments. The Company can also grant stock awards, which may be subject to vesting. Further, the Company can grant restricted stock unit (“RSU”) awards. RSU awards are denominated in shares of stock, but may be settled in cash or shares upon vesting, as determined by the Company at the time of grant. As of January 30, 2016, approximately 91.4 million shares remained available for future issuance under the Option Plan. Fiscal 2016. Fiscal 2015 In June 2014, the Company granted performance-based RSU (“PSUs”) to certain members of senior management. Pursuant to the PSUs, each eligible employee is entitled to vest in a certain number of shares based on such employee’s achievement of individual financial and strategic performance goals for fiscal 2015, including, for example, net revenue and operating expense targets, and other individual strategic milestones. The actual number of shares that vest for each eligible employee is based on the achievement of such performance goals determined at the end of fiscal 2015 and vest over two years, with 50% vesting on April 1, 2015 and 50% vesting on April 1, 2016. 2007 Directors’ Stock Incentive Plan In October 2007, the Company adopted the 2007 Directors’ Stock Incentive Plan, (“2007 Director Plan”) for which shareholders approved a total of 750,000 common shares that could be issued under the plan to all eligible outside directors. Beginning in fiscal 2015, each outside director is eligible to receive equity awards under the 2007 Director Plan. Upon election or appointment at the annual general meeting of shareholders, each outside director will be granted an RSU award for a number of shares with an aggregate fair market value equal to $220,000 immediately following each annual general meeting of shareholders. The RSU award vests 100% on the earlier of the date of the next annual general meeting of shareholders or the one-year anniversary of the date of grant. An outside director who is elected or appointed after an annual general meeting of shareholders will receive a pro rata RSU award based on the number of quarters completed since the prior annual general meeting of shareholders. In no event shall any outside director be awarded in any calendar year an annual RSU award under the 2007 Director Plan for more than 20,000 shares. In fiscal 2014, each outside director who was appointed at the annual general meeting of shareholders was granted an option to purchase a number of common shares with an aggregate grant date fair value equal to $110,000 immediately following the annual general meeting of shareholders. In addition, each outside director who was elected or appointed at the annual general meeting of shareholders was granted an RSU award for a number of shares with an aggregate fair market value equal to $110,000 immediately following each annual general meeting. The option awards, which have a term of 10 years, and the RSU awards each vest 100% on the earlier of the date of the next annual general meeting of shareholders or the one-year anniversary of the date of grant. An outside director elected or appointed after an annual general meeting of shareholders would receive a pro rata stock option award and RSU award based on the number of quarters completed since the previous annual general meeting of shareholders. In no event would any outside director be awarded in any calendar year an annual option award or annual RSU award under the 2007 Director Plan for more than 25,000 shares and 10,000 shares, respectively. As of January 30, 2016, approximately 77,952 shares remained available for future issuance under the 2007 Directors’ Plan. 2000 Employee Stock Purchase Plan Under the 2000 Employee Stock Purchase Plan, as amended and restated on October 31, 2011 (the “ESPP”), participants purchase the Company’s stock using payroll deductions, which may not exceed 15% of their total cash compensation. Pursuant to the terms of the current ESPP, the “look-back” period for the stock purchase price is 24 months. Offering and purchase periods begin on December 8 and June 8 of each year. Participants enrolled in a 24-month offering period will continue in that offering period until the earlier of the end of the offering period or the reset of the offering period. A reset occurs if the fair market value of the Company’s common shares on any purchase date is less than it was on the first day of the offering period. Participants in a 24-month offering period will be granted the right to purchase common shares at a price per share that is 85% of the lesser of the fair market value of the shares at (i) the participant’s entry date into the two-year offering period or (ii) the end of each six-month purchase period within the offering period. Under the ESPP, a total of 5.9 million shares were issued in fiscal 2016 at a weighted-average price of $10.00 per share, a total of 9.7 million shares were issued in fiscal 2015 at a weighted-average price of $7.67 per share and a total of 9.7 million shares were issued in fiscal 2014 at a weighted-average price of $7.39 per share. As of January 30, 2016, there was $47.4 million of unamortized compensation cost related to the ESPP. As of January 30, 2016, approximately 16.6 million shares remained available for future issuance under the ESPP. Option Plan and Stock Award Activity Stock option activity under the Company’s stock option and stock incentive plans is included in the following table (in thousands, except for per share amounts): Time-Based Options Market-Based Options Total Number of Weighted Number of Weighted Number of Weighted Balance at February 2, 2013 49,637 $ 13.28 2,759 $ 15.43 52,396 $ 13.39 Granted 18,922 $ 10.82 — — 18,922 $ 10.82 Exercised (15,482 ) $ 9.40 — — (15,482 ) $ 9.40 Canceled/Forfeited (3,921 ) $ 15.15 (136 ) $ 15.43 (4,057 ) $ 15.16 Balance at February 1, 2014 49,156 $ 13.40 2,623 $ 15.43 51,779 $ 13.51 Granted 6,365 $ 15.33 — — 6,365 $ 15.33 Exercised (3,732 ) $ 10.19 — — (3,732 ) $ 10.19 Canceled/Forfeited (4,649 ) $ 14.66 (391 ) $ 15.43 (5,040 ) $ 14.72 Balance at January 31, 2015 47,140 $ 13.79 2,232 $ 15.43 49,372 $ 13.88 Granted 6,170 $ 14.13 — — 6,170 $ 14.13 Exercised (2,225 ) $ 9.79 — — (2,225 ) $ 9.79 Canceled/Forfeited (10,211 ) $ 15.68 (76 ) $ 15.43 (10,287 ) $ 15.68 Balance at January 30, 2016 40,874 $ 13.59 2,156 $ 15.43 43,030 $ 13.68 Vested or expected to vest at January 30, 2016 38,773 $ 13.58 For time-based stock options vested and expected to vest at January 30, 2016, the aggregate intrinsic value was $6.7 million. For time-based stock options exercisable at January 30, 2016, the aggregate intrinsic value was $6.6 million. The aggregate intrinsic value of stock options exercised during fiscal 2016, 2015 and 2014 was $9.7 million, $19.3 million and $51.1 million, respectively. There was no aggregate intrinsic value for market-based stock options at January 30, 2016 and the weighted average remaining contractual term of market-based stock options vested and expected to reach the end of the vesting period at January 30, 2016 was 5.2 years. The Company’s closing stock price of $8.85 as reported on the NASDAQ Global Select Market as of January 29, 2016 was used to calculate the aggregate intrinsic value for all in-the-money options. As of January 30, 2016, outstanding options and exercisable options information, by range of exercise prices, was as follows: Outstanding Options Exercisable Options Range of Exercise Prices Number of Weighted Weighted Number of Weighted $ 5.70 $ 9.49 3,673 3.38 $ 7.04 3,386 $ 6.89 $10.31 $10.76 11,574 7.09 $ 10.76 3,570 $ 10.76 $10.80 $14.35 9,275 6.60 $ 13.25 3,661 $ 12.06 $14.45 $15.43 9,842 6.07 $ 15.16 4,843 $ 15.26 $15.43 $34.38 8,666 3.80 $ 19.18 5,763 $ 20.85 Total 43,030 5.77 $ 13.68 21,223 $ 14.13 As of January 30, 2016, the unamortized compensation expense for time-based stock options was $38.2 million and market-based stock options were fully amortized in fiscal 2014. The unamortized compensation expense for time-based options will be amortized on a straight-line basis and is expected to be recognized over a weighted-average period of 1.9 years. Activity related to the non-vested portion of the restricted stock units is included in the following table (in thousands, except for share prices): Time-Based Performance-Based Market-Based Total Number of Weighted Number of Weighted Number of Weighted Number of Weighted Balance at February 2, 2013 12,739 $ 15.78 12,739 $ 15.78 Granted 3,728 $ 10.79 100 $ 10.52 3,828 $ 10.78 Vested (3,925 ) $ 16.19 — — (3,925 ) $ 16.19 Canceled/Forfeited (1,288 ) $ 14.39 — — (1,288 ) $ 14.39 Balance at February 1, 2014 11,254 $ 14.14 100 $ 10.52 11,354 $ 14.11 Granted 5,534 $ 15.20 1,277 * $ 14.98 6,811 $ 15.16 Vested (5,938 ) $ 13.96 (3 ) $ 10.52 (5,941 ) $ 13.96 Canceled/Forfeited (1,102 ) $ 14.32 (120 ) $ 11.23 (1,222 ) $ 14.02 Balance at January 31, 2015 9,748 $ 14.84 1,254 $ 14.99 11,002 $ 14.85 Granted 5,689 $ 12.88 669 * $ 14.08 407 * $ 12.24 6,765 $ 12.96 Vested (5,139 ) $ 15.06 (658 ) $ 15.15 — — (5,797 ) $ 15.07 Canceled/Forfeited (1,955 ) $ 13.99 (288 ) $ 14.39 (54 ) $ 12.24 (2,297 ) $ 14.00 Balance at January 30, 2016 8,343 $ 13.57 977 $ 14.43 353 9,673 $ 13.61 * Amounts represent the target number of restricted stock units at grant date. For awards granted to our executive officers, up to 200% of the target restricted stock units may vest if the maximum level for financial and strategic goals is achieved. In connection with the performance-based equity awards granted in fiscal 2016 to each of the Company’s executive officers, a total of 33,616 shares vested on April 1, 2016 based on achieving certain individual strategic goals as evaluated by the Executive Compensation Committee of the Company’s Board of Directors. No shares vested for the achievement of financial performance goals since the financial performance criteria were below the threshold level. The amount of canceled shares reported in the table above includes the unvested shares that were not earned. In connection with the performance-based equity awards granted in fiscal 2015 to each of the Company’s executive officers, a total of 478,001 shares vested on April 1, 2015 in connection with the first performance period completed at the end of fiscal 2015. Of this amount, an additional 107,954 shares are included as granted in the table above for fiscal 2015 since each executive officer achieved greater than their target shares for one of the financial performance goals. The amount of canceled shares reported in the table above includes the portion of unvested shares that were not earned since performance objectives for each executive officer’s other financial and strategic performance goals were not fully achieved. No shares will be issued in connection with the second performance period since the financial and strategic performance goals for fiscal 2016 were not achieved. In connection with the PSUs granted in fiscal 2015 to certain members of senior management, final evaluation for each individual’s achievement of their performance was measured in the first quarter of fiscal 2016. As a result, a total of 360,723 shares vested on April 1, 2015 and are included in the above table. There was no material adjustment to share-based compensation expense related to these performance-based restricted stock units in fiscal 2016. The amount of canceled shares reported in the table above includes the portion of unvested shares that were not earned since certain performance achievements were not fully achieved. The aggregate intrinsic value of restricted stock units expected to vest as of January 30, 2016 was $81.7 million. The number of restricted stock units that are expected to vest is 9.2 million shares. As of January 30, 2016, unamortized compensation expense related to restricted stock units was $53.2 million. The unamortized compensation expense for restricted stock units will be amortized on a straight-line basis and is expected to be recognized over a weighted-average period of 1.0 years. Share-Based Compensation The following table presents details of share-based compensation expenses by functional line item (in thousands): Year Ended January 30, January 31, February 1, Cost of goods sold $ 7,916 $ 7,972 $ 8,863 Research and development 98,792 94,432 109,432 Selling and marketing 11,106 11,469 13,940 General and administrative 15,965 23,373 23,638 $ 133,779 $ 137,246 $ 155,873 Share-based compensation capitalized in inventory was $1.5 million at January 30, 2016, $1.5 million at January 31, 2015, and $1.7 million at February 1, 2014. Upon the termination of certain members of our executive management in April 2016, it was determined that the vesting in certain of their unvested stock awards was not probable. As a result, the Company recorded a reversal of the previously recognized related share-based compensation expense in the first quarter of fiscal 2017. Valuation Assumptions The expected volatility for awards granted during fiscal 2016, 2015, and 2014 was based on an equally weighted combination of historical stock price volatility and implied volatility derived from traded options on the Company’s stock in the marketplace. The Company believes that the combination of historical volatility and implied volatility provides a better estimate of future stock price volatility. The expected dividend yield is calculated by dividing the current annualized dividend by the closing stock price on the date of grant of the option. The following weighted average assumptions were used for each respective period to calculate the fair value of each time-based stock option award on the date of grant using the Black-Scholes option pricing model and of each market-based stock option award using a Monte Carlo simulation model: Year Ended January 30, January 31, February 1, Time-based Stock Options: Weighted average fair value $ 3.93 $ 4.35 $ 3.43 Expected volatility 34 % 35 % 45 % Expected term (in years) 5.4 5.0 5.0 Risk-free interest rate 1.6 % 1.6 % 0.8 % Expected dividend yield 1.8 % 1.6 % 2.4 % There have been no market-based stock option grants since fiscal 2012, when the Company issued 3.1 million stock options with a market-based condition for a group of senior employees. The market price conditions were not met within the five years from date of grant and these stock options automatically expired in April 2016. The fair value of each market-based stock option award was estimated on the date of grant using a Monte Carlo simulation model that uses assumptions as then determined, including the same volatility applied to the Company’s time-based options that were granted in the same period. Because a Monte Carlo simulation model incorporates ranges of assumptions for inputs, those ranges are disclosed where applicable. The Company uses historical data to estimate employee termination within the valuation model. The expected term was 2.66 years for market-based stock options granted in fiscal 2012 and was derived from the output of the valuation model and represents the period of time that options granted are expected to be outstanding. Year Ended January 30, January 31, February 1, Employee Stock Purchase Plan: Estimated fair value $ 3.24 $ 4.10 $ 3.65 Expected volatility 41 % 30 % 37 % Expected term (in years) 1.3 1.3 1.3 Risk-free interest rate 0.6 % 0.3 % 0.2 % Expected dividend yield 2.4 % 1.6 % 2.0 % Year Ended January 30, Total Shareholder Return Awards: Expected term (in years) 2.0 Expected volatility 27 % Average correlation coefficient of peer companies 0.4 % Risk-free interest rate 0.5 % Expected dividend yield 1.7 % The correlation coefficients are calculated based upon the price data used to calculate the historical volatilities and is used to model the way in which each entity tends to move in relation to its peers. Share Repurchase Program The Company’s board of directors initially authorized its current share repurchase program to repurchase up to $500 million of its outstanding common shares in August 2010. Since then, the Company’s board of directors has authorized an additional $2.75 billion for a total available under the program of $3.25 billion to be used to repurchase its common shares. The Company intends to effect share repurchases in accordance with the conditions of Rule 10b-18 under the Exchange Act but may also make repurchases in the open market outside of Rule 10b-18 or in privately negotiated transactions. The share repurchase program will be subject to market conditions and other factors, and does not obligate the Company to repurchase any dollar amount or number of its common shares and the repurchase program may be extended, modified, suspended or discontinued at any time. The Company repurchased 19.7 million of its common shares for $260.9 million, 5.1 million of its common shares for $65.0 million and 33.1 million of its common shares for $354.1 million in cash during fiscal 2016, 2015 and 2014, respectively. All of the repurchased shares were retired immediately after the repurchases were completed. The Company records all repurchases, as well as investment purchases and sales, based on their trade date. As of January 30, 2016, a total of 241.6 million shares have been repurchased to date under the Company’s share repurchase program for a total $3.1 billion in cash and there was $182.6 million remaining available for future share repurchases. The Company has made no subsequent share repurchases since its third quarter of fiscal 2016. Dividends Year Ended January 30, January 31, February 1, Cash dividend per share $ 0.24 $ 0.24 $ 0.24 Total payment to shareholders (in thousands) $ 122,821 $ 122,801 $ 119,449 On March 16, 2016, the Company announced that its board of directors declared a cash dividend of $0.06 per share that was paid on April 22, 2016 to shareholders of record as of March 29, 2016 and on May 18, 2016, it announced that its board of directors declared a cash dividend of $0.06 per share that was paid on July 12, 2016 to shareholders of record as of June 14, 2016. |