NOTE 13 - SHARE-BASED COMPENSATION

The following table shows the total compensation cost charged as an expense for share-based compensation plans, including stock options and share grants, recognized in the statements of income for the years ended December 31, 2014, 2013 and 2012:

	2014		2013		2012
Cost of goods sold	$	438	$	522	$	458
Selling, general and administrative expense		12,438		11,645		12,715
Research and development expense		1,228		1,384		1,225

Total share-based compensation expense	$	14,104	$	13,551	$	14,398

Stock Options – Stock options under our 2001 Omnibus Equity Incentive Plan (“2001 Plan”) generally vest in equal annual installments over a four-year period and expire ten years after the grant date.

In May 2013, our stockholders approved our 2013 Equity Incentive Plan (“2013 Plan”). Since the approval of the 2013 Plan, all stock options are granted under the 2013 Plan, and we will not grant any further stock options under our 2001 Plan. Stock options under the 2013 Plan generally vest in equal annual installments over a four-year period and expire eight years after the grant date. The number of shares authorized to be awarded under the 2013 Plan is 6 million shares. For additional information on the 2013 Plan, see our definitive proxy statement filed with the SEC.

Share-based compensation expense for stock options granted during 2014, 2013 and 2012 was calculated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:

	2014			2013			2012
Expected volatility		53.36	%		53.36	%		53.86	%
Expected term (years)		7.2			7.2			7.5
Risk free interest rate		2.08	%		1.49	%		1.16	%
Forfeiture rate		0.00	%		0.78	%		0.76	%

Expected volatility – We estimate expected volatility using historical volatility. Public trading volume on options in our stock is not material. As a result, we determined that utilizing an implied volatility factor would not be appropriate. We calculate historical volatility for the period that is commensurate with the option’s expected term assumption. For 2014, the expected volatility for grants to officers and the Board is 53.36%, while the expected volatility for grants to all other employees is 56.91%.

Expected term – We have evaluated expected term based on history and exercise patterns across our demographic population. We believe that this historical data is the best estimate of the expected term of a new option. For 2014, the expected term for grants to officers and the Board is approximately 7 years, while the expected term for grants to all other employees is approximately 5 years.

Risk free interest rate – We estimate the risk-free interest rate based on zero-coupon U.S. treasury securities for a period that is commensurate with the expected term assumption.

Forfeiture rate - The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest as forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinguished from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. This analysis will be re-evaluated at least annually, and the forfeiture rate for all grants will be adjusted as necessary.

Dividend yield – We historically have not paid a cash dividend on our common stock; therefore this input is zero.

The weighted-average grant-date fair value of options granted during 2014, 2013 and 2012 was $15.68, $12.88, and $10.60, respectively. The total cash received from option exercises was approximately $6 million, $3 million and $1 million during 2014, 2013 and 2012, respectively.

For the years ended December 31, 2014, 2013 and 2012, stock option expense was approximately $3 million, $4 million and $5 million, respectively.

At December 31, 2014, unamortized compensation expense related to unvested options, net of estimated forfeitures, was approximately $5 million. The weighted average period over which share-based compensation expense related to these options will be recognized is approximately 2 years.

A summary of our stock option plans is as follows:

Stock Options	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at January 1, 2012		3,587		$	16.69
Granted		402			19.31
Exercised		(274	)		4.81
Forfeited or expired		(2	)		20.10
Outstanding at December 31, 2012		3,713			17.85
Exercisable at December 31, 2012		2,715			16.48

Outstanding at January 1, 2013		3,713			17.85
Granted		186			23.35
Exercised		(341	)		7.70
Forfeited or expired ⁽¹⁾		(432	)		20.34
Outstanding at December 31, 2013		3,126			18.93
Exercisable at December 31, 2013		2,509			18.01

Outstanding at January 1, 2014		3,126			18.93
Granted		176			27.92
Exercised		(564	)		10.37			$	10,090
Forfeited or expired		(2	)		29.21
Outstanding at December 31, 2014		2,736		$	21.26		4.0	$	17,840
Exercisable at December 31, 2014		2,205		$	20.49		3.3	$	16,036

⁽¹⁾

The Compensation Committee of the Board of Directors reviewed the grants of stock options to the Chief Executive Officer (“CEO”) in 2009, 2010, 2011 and 2012 (each such annual grant, an “Option Grant”), and approved a Confirmation Agreement, dated April 1, 2013, in which we and our CEO agreed and confirmed that our CEO will assert no claim that any Option Grant in 2009, 2010, 2011 or 2012 provided for the purchase of more than 100,000 shares of our Common Stock, and that each Option Grant document be deemed amended to reflect the foregoing 100,000 share limitation.

The following table summarizes information about stock options outstanding at December 31, 2014:

Plan	Range of exercise prices		Number outstanding		Weighted average remaining contractual life (years)		Weighted average exercise price
2001 Plan	$	11.53-29.21		2,377		3.6	$	20.61
2013 Plan	$	23.35-27.92		358		6.9	$	25.60

The following summarizes information about stock options exercisable at December 31, 2014:

Plan	Range of exercise prices		Number exercisable		Weighted average remaining contractual life (years)	Weighted average exercise price
2001 Plan	$	11.53-29.21		2,160	3.2	$	20.43
2013 Plan	$	23.35		46	6.4	$	23.35

Share Grants—Restricted stock awards and restricted stock units generally vest in equal annual installments over a four-year period.

Since the approval of the 2013 Plan, all new grants are granted under the 2013 Plan, and we will not grant any further grants under our 2001 Plan.

A summary of our non-vested share grants in 2014, 2013 and 2012 are presented below:

Restricted Stock Grants	Shares			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Nonvested at January 1, 2012		1,024		$	21.48
Granted		482			18.95
Vested		(305	)		21.48
Forfeited		(37	)		21.67
Nonvested at December 31, 2012		1,164		$	20.42

Nonvested at January 1, 2013		1,164		$	20.42
Granted		453			24.66
Vested		(428	)		19.90
Forfeited		(58	)		21.66
Nonvested at December 31, 2013		1,131		$	22.35

Nonvested at January 1, 2014		1,131		$	22.35
Granted		788			25.08
Vested		(346	)		22.34	$	9,974
Forfeited		(38	)		24.98
Nonvested at December 31, 2014		1,535		$	27.58	$	42,324

For each of the years ended December 31 of 2014, 2013 and 2012, share-based compensation expense related to restricted stock arrangements granted was approximately $11 million, $9 million and $9 million, respectively. The total unrecognized share-based compensation expense as of December 31, 2014 was approximately $19 million, which is expected to be recognized over a weighted average period of approximately 3 years.

On September 22, 2009, we entered into an employment agreement (the “Agreement”) with Dr. Keh-Shew Lu, President and Chief Executive Officer (the “Employee”), pursuant to which he will continue to be employed by us in such positions for an additional six-year term. As part of the Agreement, we and the Employee entered into a Stock Award Agreement that provides that: (i) we shall grant to the Employee 100,000 shares of Common Stock in the form of restricted stock awards on each of April 14, 2010, 2011, 2012, 2013, 2014 and 2015; (ii) each such installment would vest only if we achieved $1 billion net sales; (iii) upon the termination of the Employee’s employment, our obligation to grant any subsequent installment would terminate; and (iv) any granted shares would be automatically forfeited and returned to us if the Employee’s employment with us is terminated before we achieve the specified target amount of net sales, except in the case of death or disability (as defined) in which case the granted shares would become fully vested on the date of death or disability. The estimated fair value of this grant is approximately $12 million and is being expensed on a straight line basis through April 14, 2015. As of December 31, 2014, five annual installments have been granted and are included in the above table as granted but not vested. As of December 31, 2014, no installments have vested.