Stock Based Compensation

12 Months Ended

Jan. 29, 2012

Stock Based Compensation [Abstract]

Stock Based Compensation

Note 10. Stock Based Compensation

Financial Statement Effects and Presentation. The following table shows total pre-tax, stock-based compensation expense included in the Consolidated Statements of Income for fiscal years 2012, 2011 and 2010.

	Fiscal Year Ended
(in thousands)	January 29, 2012			January 30, 2011			January 31, 2010
Cost of sales	$	983		$	1,802		$	1,168
Selling, general and administrative		15,839			19,310			13,566
Product development and engineering		7,198			7,898			5,201
Stock-based compensation, pre-tax	$	24,020		$	29,010		$	19,935
Net change in stock-based compensation capitalized into inventory	$	(83	)	$	(116	)	$	58

The below table summarizes the net impact of stock-based compensation, after tax, on net income for fiscal years 2012, 2011 and 2010.

	Fiscal Year Ended
(in thousands)	January 29, 2012			January 30, 2011			January 31, 2010
Stock-based compensation	$	24,020		$	29,010		$	19,935
Associated tax effect		(5,693	)		(9,170	)		(4,978	)
Net effect on net income	$	18,327		$	19,840		$	14,957

The tax benefit realized from option exercise activity for fiscal years 2012, 2011 and 2010 was $12.9 million, $7.1 million and $1.6 million, respectively.

Share-based Payment Arrangements. The Company has various equity award plans that provide for granting stock based awards to employees and non-employee directors of the Company. The plans provide for the granting of several available forms of stock compensation. As of January 29, 2012, the Company has granted Options and restricted stock under the plans and has also issued some stock-based compensation outside of the plans, including Options and restricted stock issued as inducements to join the Company.

Grant Date Fair Values and Underlying Assumptions; Contractual Terms. The Company uses the Black-Scholes pricing model to value Options. For awards classified as equity, stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as an expense over the employee's or director's requisite service period. For awards classified as liabilities, stock based compensation cost is measured at fair value at the end of each reporting date until the date of settlement, and is recognized as an expense over the employee or director's requisite service period. Expected volatilities are based on historical volatility using daily and monthly stock price observations.

The following table summarizes the assumptions used in the Black-Scholes model to determine the fair value of options granted in fiscal years 2012, 2011 and 2010:

	January 29, 2012	January 30, 2011	January 31, 2010
Expected lives, in years	4.4 - 4.7	4.3 - 5.1	5.0
Estimated volatility	40% - 41%	39% - 40%	40% - 41%
Dividend yield	—	—	—
Risk-free interest rate	.71% - 1.8%	1.2% - 2.3%	1.9% - 2.7%
Weighted average fair value on grant date	$8.43	$6.56	$8.72

The estimated fair value of restricted stock awards was calculated based on the market price of the Company's common stock on the date of grant. Some of the restricted stock awarded in fiscal year 2012 and prior years are classified as liabilities rather than equity. For awards classified as liabilities, the value of these awards was re-measured on January 29, 2012.

Stock Option Awards. The Company has historically granted stock option awards to both employees and non-employee directors. The grant date for these awards is equal to the measurement date. These awards were valued as of the measurement date and are amortized over the requisite vesting period (typically 3-4 years). A summary of the activity for stock option awards for fiscal years 2012, 2011 and 2010 is presented below:

(in thousands, except for per share amounts)	Number of Shares			Weighted Average Exercise Price (per share)		Aggregate Intrinsic Value (1)		Aggregate Unrecognized Compensation		Number of Shares Exercisable		Weighted Average Contractual Term
Balance at January 25, 2009		9,394				$	342	$	16,275		6,070
Options granted (2)		1,334		$	10.05
Options exercised		(830	)				2,324
Options cancelled/forfeited		(747	)
Balance at January 31, 2010		9,151					8,998		9,436		6,302
Options granted		403			17.61
Options exercised		(2,329	)		14.22		11,495
Options cancelled/forfeited		(603	)		21.35
Balance at January 30, 2011		6,622			16.84		35,492		7,067		5,160
Options granted		343			24.05
Options exercised		(2,781	)		16.64		22,537
Options cancelled/forfeited		(494	)		22.30
Balance at January 29, 2012		3,690			16.94		44,435	$	4,699		2,767
Exercisable at January 29, 2012		2,767			16.42		34,738						2.41
Expected to vest after January 29, 2012		786		$	18.30	$	8,379						4.58

(1) Represents the difference between the exercise price and the value of the Company's stock at the time of exercise, for exercised grants. For outstanding awards, represents the difference between the exercise price and the value of the Company's stock at fiscal year end.

(2)   Includes the replacement awards issued to employees of SMI who held unvested SMI options on December 9, 2009.

The following table summarizes information about stock options outstanding at January 29, 2012.

Stock Options	Shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Life (years)
(in thousands, except per share amount)
Price Range Analysis - Outstanding
$1.15 - $4.53		13	$	2.80		5.33
$7.23 - $10.94		72		8.82		4.85
$11.23 - $16.85		2,173		15.07		2.78
$16.90 - $26.70		1,307		19.50		3.24
$27.14 - $29.78		125		28.65		2.11
Total outstanding		3,690	$	16.94		2.97
Price Range Analysis - Exercisable
$1.15 - $4.53		10	$	2.42		5.27
$7.23 - $10.94		40		9.07		4.30
$11.23 - $16.85		1,742		15.05		2.49
$16.90 - $26.70		891		18.42		2.33
$27.14 - $29.78		84		29.07		0.36
Total exercisable		2,767	$	16.42		2.41

The following table summarizes information regarding unvested stock option awards at January 29, 2012:

(in thousands, except for per share amounts)	Number of Shares			Weighted Average Exercise Price (per share)		Weighted Average Grant Date Fair Value (per share)		Weighted Average Remaining Expense Period (in years)		Total Fair Value
Balance at January 30, 2011		1,462		$	15.00	$	6.23		1.9	$	9,103
Options granted		343			24.05		8.43				2,893
Options vested		(650	)		14.30		6.33				4,115
Options forfeited		(231	)		16.59		6.39				1,479
Balance at January 29, 2012		924		$	18.47	$	6.99		1.8	$	6,452

Restricted Stocks. The Company has not granted any restricted stock to employees since fiscal year 2009. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date and recognized as compensation expense over the requisite vesting period (typically 3-4 years). A summary of the activity for restricted stock awards for fiscal years 2012, 2011 and 2010 is presented below:

(in thousands, except for per share amounts)	Number of Shares			Weighted Average Grant Date Fair Value (per share)		Aggregate Intrinsic Value (1)		Aggregate Unrecognized Compensation		Weighted Average Period Over Which Expected to be Recognized (in years)
Balance at January 25, 2009		763		$	15.36			$	7,524		2.2
Restricted stocks granted		—
Restricted stocks vested		(305	)			$	4,619
Restricted stocks cancelled		(40	)
Balance at January 31, 2010		418			15.15				3,193		1.2
Restricted stocks granted		—
Restricted stocks vested		(270	)		17.33		4,678
Restricted stocks cancelled		(13	)		17.44
Balance at January 30, 2011		135			14.44				984		0.8
Restricted stocks granted		—
Restricted stocks vested		(91	)		14.29	$	2,201
Restricted stocks cancelled		(12	)		15.25
Balance at January 29, 2012		32		$	14.57			$	81		0.1

(1) Represents the value of Semtech stock on the date that the restricted stock vested.

Performance Units. The Company grants performance vested RSU's to select employees. These awards have a performance condition in addition to a service condition. The performance condition generally relates to the Company's revenue and operating income measured against internal goals. Under the terms of these awards, assuming the highest level of performance with no cancellations due to forfeitures, the maximum number of shares that can be earned in the aggregate is 719,400. In this scenario, the maximum number of shares that could be issued thereunder would be 359,700 and the Company would have a liability accrued in the Consolidated Balance Sheet equal to the value of 359,700 shares on the settlement date, which would be settled in cash. At January 29, 2012, 85% of the units from the fiscal year 2009 grant vested and 200% of the units from the fiscal year 2010 grant are expected to vest. At January 29, 2012, the performance metrics associated with the awards issued in fiscal years 2011 and 2012 are expected to be met at a level which would result in a grant at 200% and 100% of target respectively. The following table summarizes performance unit award activity during fiscal years 2012, 2011 and 2010:

																Weighted Average
				Subject to Share Settlement			Subject to Cash Settlement					Weighted Average Grant Date		Aggregate		Period Over Which Expected
(in thousands, except for per share amount)	Total Units			Units			Units			Recorded Liability		Fair Value (per share)		Unrecognized Compensation		to be Recognized (in years)
Balance at January 25, 2009		307			154			153		$	—	$	14.64	$	—		1.7
Performance units granted		318			227			91					13.92
Performance units vested		—			—			—
Performance units cancelled/forfeited		(32	)		(18	)		(14	)				11.23
Change in liability											259
Balance at January 31, 2010		593			363			230			259		14.29		580		1.3
Performance units granted		143			72			71					16.68
Performance units vested		—			—			—
Performance units cancelled/forfeited		(180	)		(109	)		(71	)				16.28
Change in liability											3,666		—
Balance at January 30, 2011		556			326			230			3,925		14.26		7,971		1.0
Performance units granted		117			59			58					23.33
Performance units vested		(218	)		(157	)		(61	)				14.74
Performance units cancelled/forfeited		(95	)		(48	)		(47	)				15.26
Change in liability											2,109
Balance at January 29, 2012		360			180			180		$	6,034	$	16.65	$	4,829		1.0

Stock Units, Employees. The Company issues stock unit awards to employees which are expected to be settled with stock. The grant date for these awards is equal to the measurement date. These awards are valued as of the measurement date and amortized over the requisite vesting period (typically 4 years). The following table summarizes stock unit award activity for fiscal years 2012 and 2011:

(in thousands, except for per share amount)	Number of Units			Weighted Average Grant Date Fair Value (per unit)		Aggregate Intrinsic Value (1)		Aggregate Unrecognized Compensation		Period Over Which Expected to be Recognized (in years)
Balance at January 25, 2009		316		$	14.97			$	3,345		3.6
Stock units granted		1,205			15.84
Stock units vested		(66	)			$	1,137
Stock units forfeited		(45	)
Balance at January 31, 2010		1,410			15.72				17,713		3.4
Stock units granted		1,181			17.62
Stock units vested		(404	)		19.20		7,749
Stock units forfeited		(129	)		19.50
Balance at January 30, 2011		2,058			16.70				29,763		2.7
Stock units granted		810			22.74
Stock units vested		(627	)		16.61	$	14,333
Stock units forfeited		(259	)		17.75
Balance at January 29, 2012		1,982		$	19.06			$	31,472		2.4

(1) Reflects the value of Semtech stock on the date that the stock unit vested.

Stock Units, Non-Employee Directors. The Company grants stock unit awards to non-employee directors. These RSUs are accounted for as liabilities and accrued in the Consolidated Balance Sheets because they are cash settled. The value of these awards is re-measured at each reporting period until settlement, which typically occurs upon the director's separation from service. Vested awards and the pro-rata vested portion of unvested awards are recognized as a liability. These awards vest after one year of service. The following table summarizes stock unit award activity for fiscal years 2012, 2011 and 2010:

(in thousands, except per share amount)	Number of Units			Recorded Liability		Weighted Average Grant Date Fair Value (per unit)		Aggregate Unrecognized Compensation		Period Over Which Expected to be Recognized (in years)
Balance at January 25, 2009		41		$	633	$	13.81	$	239		0.4
Stock units granted		35					16.18
Stock units vested		(41	)
Stock units forfeited		—
Change in Liability					756
Balance at January 31, 2010		35			1,389		16.18		232		0.4
Stock units granted		30					16.43
Stock units vested		(35	)				16.18
Stock units forfeited		—
Change in Liability					1,024
Balance at January 30, 2011		30			2,414		16.43		269		0.4
Stock units granted		18					27.60
Stock units vested		(30	)				16.43
Stock units forfeited		—
Change in Liability					1,459
Balance at January 29, 2012		18		$	3,873	$	27.60	$	216		0.4

As of January 29, 2012, the number of vested but unsettled stock units for Non-Employee Directors is 29,820, 30,282, 35,476, 27,825 in fiscal year 2012, 2011, 2010, and 2009, respectively.