Spansion Inc. - 10-Q/A filing on 2014-07-09

Note 5 - Equity Incentive Plan and Stock-Based Compensation

3 Months Ended

Mar. 30, 2014

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

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

5.	Equity Incentive Plan and Stock-Based Compensation

Equity Incentive Plan

The Company’s 2010 Equity Incentive Award Plan (2010 Plan) provides for the grant of stock options, stock appreciation rights, restricted stock units, restricted stock, performance awards, and deferred stock to its employees, consultants and non-employee members of its Board of Directors.

In the first quarter of fiscal 2014, the Company granted performance awards to certain senior executives where vesting is subject to achievement of performance goals established by the Compensation Committee of the Company’s Board of Directors. Performance is measured based on a combination of the Company achieving certain financial targets and a relative total shareholder return (TSR) goal. The TSR goal is based on the Company’s TSR measured against a benchmark TSR of a peer group over a three-year period. These awards vest at the end of the performance period of 3 years from the grant date. The number of stock awards to vest will range from 0% to 150% of the original awards granted. In evaluating the fair value of these awards, the Company used a combination of the stock price at the close of market on grant date, for the performance condition, and a Monte Carlo simulation on grant date, taking the market-based goal into consideration, for the market condition.

The numbers of shares of common stock available for grant under the 2010 Plan are shown in the following table:

	Shares Available For Grant
Balance as of December 29, 2013		2,350,404
Additional shares issuable under 2010 Plan (annual increase for 2014)		2,069,902
Stock options forfeited/cancelled through March 30, 2014		177,791
RSU awards granted, net of forfeitures/cancellations		(843,040	)
Key executive RSU awards forfeited/cancelled through March 30, 2014		357,870
PSU awards granted, net of forfeitures/cancellations ⁽¹⁾		(256,000	)
Balance as of March 30, 2014		3,856,927

(1) Includes performance awards granted in fiscal 2014 at target. Maximum awards that could be earned is 411,000.

Stock-Based Compensation

The following table presents the total stock-based compensation expense by financial statement caption resulting from the Company’s stock options, RSU and PSU awards:

	Three Months Ended
	March 30, 2014		March 31, 2013
	(in thousands)

Cost of sales	$	1,491	$	1,472
Research and development		1,964		2,795
Sales, general and administrative		5,026		4,357
Stock-based compensation expense after income taxes⁽¹⁾	$	8,481	$	8,624

⁽¹⁾ There was no income tax benefit related to stock-based compensation because all of the Company's U.S. deferred tax assets, net of U.S. deferred tax liabilities, continue to be subject to a full valuation allowance.

The weighted average fair value of the Company’s stock options granted is as follows:

	Three Months Ended
	March 30, 2014		March 31, 2013

Weighted average fair value of stock options granted	$	-	$	4.99

The fair value of each stock option was estimated at the date of grant using a Black-Scholes option pricing model, with the following assumptions for grants:

	Three Months Ended
	March 31, 2013

Expected volatility		54.03%
Risk-free interest rate		0.60%
Expected term (in years)		4.35
Dividend yield		0.00%

As of March 30, 2014, the total unrecognized compensation cost related to unvested stock options and RSU awards including performance based awards was approximately $31.5 million after reduction for estimated forfeitures which will be recognized by the end of first quarter of fiscal 2017. No stock options were granted in fiscal 2014.

The fair value of each PSU award granted in fiscal 2014 and fiscal 2013 was $2.25 and $7.40 respectively using the Monte-Carlo pricing model and was estimated with the following assumptions:

	Three Months Ended
	March 30, 2014		March 31, 2013

Stock price on grant date	$	16.58	$	11.50
Expected volatility		42.79%		50.90%
Risk-free interest rate		0.73%		0.21%
Dividend yield		0.00%		0.00%

Stock Option and Restricted Stock Unit Activity

The following table summarizes stock option activities and related information under the 2010 Plan for the periods presented:

	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Life (in Years)		Value
								(in thousands)
Outstanding stock options as of December 29, 2013		6,542,929		$	13.03		4.42	$	14,061
Granted		-		$	-			$	-
Cancelled/Forfeited		(177,791	)	$	13.57			$	-
Exercised		(519,992	)	$	10.28			$	2,894
Outstanding stock options as of March 30, 2014		5,845,146		$	13.27		4.13	$	26,973
Total vested and exercisable as of March 30, 2014		4,696,272		$	13.87		3.85	$	19,482

No income tax benefit was realized from stock option exercises for the three months ended March 30, 2014.

The following table summarizes RSU award activities and related information for the three months ended March 30, 2014:

	RSU
				Weighted Average
	Number of			Grant-date
	Shares			Fair Value
Outstanding as of December 29, 2013		2,384,712		$	14.01
Granted		912,593		$	15.00
Cancelled/Forfeited		(69,553	)	$	12.72
Vested		(639,229	)	$	10.58
Outstanding as of March 30, 2014		2,588,523		$	15.24

	Key Executive RSU					PSU
				Weighted Average					Weighted Average
	Number of			Grant-date		Number of			Grant-date
	Shares			Fair Value		Shares			Fair Value
Outstanding as of December 29, 2013		974,286		$	12.40		362,000		$	7.38
Granted		-		$	-		274,000	⁽¹⁾	$	2.25
Cancelled/Forfeited		(357,870	)	$	11.03		(18,000	)	$	7.40
Vested		(318,781	)	$	12.77		-		$	-
Outstanding as of March 30, 2014		297,635		$	13.65		618,000		$	5.10

(1) PSU grants in fiscal 2014 are shown at a target of 274,000 shares and the maximum that can be earned on these are 411,000 shares.