Employee Benefit Plans

(a) Employee Stock Compensation Plans

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 February 3, 2018. 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. 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. Awards under the Option Plan generally vest over 2 to 5 years.

As of February 3, 2018, approximately 96.5 million shares remained available for future grants under the Option Plan.

The Company grants performance-based equity awards to each of its executive officers when they join the Company, and as an annual refresh grant to all executive officers in April of each fiscal year. These equity awards include RSU’s which vest based on the achievement of certain financial goals (“Financial Performance RSU”). The Financial Performance RSUs have a three year service requirement. The number of shares to be earned can be 0% to 200% of target and is based on the achievement of certain financial operating metrics to be measured as of the end of the second fiscal year of the three year vesting term. Shares granted under these Financial Performance RSUs are reported in the table presented below as “Performance-Based” based on 100% expected achievement.

The executive officers are also granted equity awards at date of hire and annually, usually in April, as part of the above-mentioned refresh grant program. The number of shares to be earned can be 0% to 150% of target and is based on the achievement of performance objectives relating to relative total shareholder return of the Company’s common shares as compared to that of comparable companies of the Philadelphia Semiconductor Sector Index over a performance period defined in the award. The Total Shareholder Return Awards have a three year service requirement. These Total Shareholder Return Awards are reported in the table presented below as “Market-Based” based on 100% expected achievement.

In December 2017, the Company’s Executive Compensation Committee approved a deferred stock program, whereby executives of the Company have the option, beginning in 2018, to defer the settlement of time-based and performance-based stock units granted under the 1995 Stock Option Plan to a future date. A deferral election is irrevocable after the annual submission deadline. The shares of common stock underlying the deferred RSUs will be distributed at the earliest of the employee’s specified future settlement date, not to be earlier than 2023, or upon separation from service, a change in control, or death or disability. As of February 3, 2018, no executives had elected deferral.

Outside Director Equity Compensation Policy

In September 2016, the Company’s Board of Directors approved the termination of the 2007 Directors’ Stock Incentive Plan, (“2007 Director Plan”) that was initially adopted in October 2007, and it approved a new Outside Director Equity Compensation Policy that governs the grant of equity awards to non-employee directors under the Option Plan. At the annual general meeting of shareholders held in June 2015, the shareholders approved an amendment to the Option Plan to enable a full range of awards to be granted to non-employee directors. Under the newly adopted Outside Director Compensation Policy, each outside director, upon appointment to fill a vacancy on the board or in connection with election at an annual meeting of shareholders, will be granted an RSU award under the 1995 Stock Option Plan for a number of shares with an aggregate fair market value equal to $220,000 on the grant date. In no event shall an outside director be awarded an annual RSU award for more than 20,000 shares. 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.

(b) 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 7.0 million shares were issued in fiscal 2018 at a weighted-average price of $7.49 per share, a total of 2.3 million shares were issued in fiscal 2017 at a weighted-average price of $7.33 per share, and a total of 5.9 million shares were issued in fiscal 2016 at a weighted-average price of $10.00 per share. As of February 3, 2018, there was $30.1 million of unamortized compensation cost related to the ESPP.

As of February 3, 2018, approximately 22.5 million shares remained available for future issuance under the ESPP.

The following table summarizes share-based compensation expense (in thousands):



	Year Ended
	February 3, 2018			January 28, 2017		January 30, 2016
Continuing operations:
Cost of goods sold	$	6,646		$	8,334	$	7,787
Research and development	52,127			74,809		88,897
Selling, general and administrative	26,349			18,257		26,082
Share-based compensation - continuing operations	$	85,122		$	101,400	$	122,766
Discontinued operations:
Cost of goods sold	(11		)	187		129
Research and development	1,458			11,633		9,895
Selling, general and administrative	120			750		989
Share-based compensation - discontinued operations	1,567			12,570		11,013
Total share-based compensation	$	86,689		$	113,970	$	133,779

Share-based compensation capitalized in inventory was $1.3 million at February 3, 2018, $0.9 million at January 28, 2017 and $1.5 million at January 30, 2016.

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 no longer probable. As a result, the Company recorded a reversal of the previously recognized related share-based compensation expense in fiscal 2017 of $2.4 million.

(d) Restricted Stock and Stock Unit Awards

A summary of restricted stock unit activity, which includes time-based and performance-based or market-based restricted stock units, is as follows (in thousands, except per-share amounts):



	Time-Based				Performance-Based					Market-Based					Total
	Number of Shares		Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value
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			$	12.24	9,673		$	13.61
Granted	9,139		$	9.83	366		*	$	13.91	612			$	11.94	10,117		$	10.11
Vested	(5,490	)	$	13.95	(155	)		$	14.15	—			$	—	(5,645	)	$	13.95
Canceled/Forfeited	(2,067	)	$	10.69	(875	)		$	14.45	(406	)		$	12.39	(3,348	)	$	11.88
Balance at January 28, 2017	9,925		$	10.52	313			$	13.91	559			$	11.80	10,797		$	10.69
Granted	8,154		$	15.33	406		*	$	14.49	409		*	$	15.14	8,969		$	15.28
Vested	(5,653	)	$	10.86	—			$	—	—			—		(5,653	)	$	10.86
Canceled/Forfeited	(2,137	)	$	11.95	(47	)		$	13.99	(47	)		$	14.71	(2,231	)	$	12.05
Balance at February 3, 2018	10,289		$	13.84	672			$	14.25	921			$	13.14	11,882		$	13.81


*	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 performance goals is achieved.

The aggregate intrinsic value of restricted stock units expected to vest as of February 3, 2018 was $266.5 million. The number of restricted stock units that are expected to vest is 11.9 million shares.

As of February 3, 2018, unamortized compensation expense related to restricted stock units was $118.4 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 1.9 years.

(e) Stock Option Awards

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 Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
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
Granted	2,104		$	9.99	—		—		2,104		$	9.99
Exercised	(5,558	)	$	10.35	—		—		(5,558	)	$	10.35
Canceled/Forfeited	(12,324	)	$	16.44	(2,156	)	$	15.43	(14,480	)	$	16.29
Balance at January 28, 2017	25,096		$	12.61	—		$	—	25,096		$	12.61
Granted	—		$	—	—		—		—		$	—
Exercised	(10,305	)	$	12.38	—		—		(10,305	)	$	12.38
Canceled/Forfeited	(3,019	)	$	14.33	—		—		(3,019	)	$	14.33
Balance at February 3, 2018	11,772		$	12.36	—		$	—	11,772		$	12.36
Vested or expected to vest at February 3, 2018	11,772		$	12.36

For stock options vested and expected to vest at February 3, 2018, the aggregate intrinsic value was $118.6 million. For stock options exercisable at February 3, 2018, the aggregate intrinsic value was $84.5 million. The aggregate intrinsic value of stock options exercised during fiscal 2018, 2017 and 2016 was $57.0 million, $19.8 million and $9.7 million, respectively. The Company’s closing stock price of $22.43 as reported on the NASDAQ Global Select Market as of February 3, 2018 was used to calculate the aggregate intrinsic value for all in-the-money options.

Outstanding options and exercisable options information by range of exercise prices as of February 3, 2018 was as follows:



				Outstanding Options				Exercisable Options
Range of Exercise Prices				Number of Shares (in Thousands)	Weighted Average Remaining Contractual Term (in Years)	Weighted Average Exercise Price		Number of Shares (in Thousands)	Weighted Average Exercise Price
$	5.70	$	10.47	2,083	3.79	$	8.02	1,463	$	7.32
$	10.76	$	10.76	3,400	5.23	$	10.76	3,398	$	10.76
$	10.80	$	14.35	3,226	6.03	$	13.56	982	$	11.89
$	14.45	$	15.87	2,795	5.66	$	15.46	1,667	$	15.42
$	15.91	$	21.62	268	2.00	$	19.55	264	$	19.60
Total				11,772	5.22	$	12.36	7,774	$	11.55

As of February 3, 2018, the unamortized compensation expense for stock options was $4.5 million. The unamortized compensation expense for options will be amortized on a straight-line basis and is expected to be recognized over a weighted-average period of 0.9 years.

(f) Valuation of Employee Share-Based Awards

The expected volatility for awards granted during fiscal 2018, 2017 and 2016 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:



	Year Ended
	February 3, 2018	January 28, 2017			January 30, 2016
Time-based Stock Options:
Weighted average fair value	N/A	$	2.92		$	3.93
Expected volatility	N/A	40		%	34		%
Expected term (in years)	N/A	5.2			5.4
Risk-free interest rate	N/A	1.3		%	1.6		%
Expected dividend yield	N/A	2.5		%	1.8		%

There were no options granted in fiscal 2018.

The following weighted-average assumptions were used for each respective period to calculate the fair value of common shares to be issued under the ESPP on the date of grant using the Black-Scholes option pricing model:



	Year Ended
	February 3, 2018			January 28, 2017			January 30, 2016
Employee Stock Purchase Plan:
Estimated fair value	$	6.03		$	3.83		$	3.24
Expected volatility	30		%	39		%	41		%
Expected term (in years)	1.2			1.2			1.3
Risk-free interest rate	1.6		%	0.7		%	0.6		%
Expected dividend yield	1.1		%	1.9		%	2.4		%

The following weighted-average assumptions were used for each respective period to calculate the fair value of common shares to be issued under Total Shareholder Return performance awards on the date of grant using the Monte Carlo pricing model:



	Year Ended
	February 3, 2018		January 28, 2017		January 30, 2016
Total Shareholder Return Awards:
Expected term (in years)	2.9		2.9		2.0
Expected volatility	35	%	36	%	27	%
Average correlation coefficient of peer companies	0.5		0.5		0.4
Risk-free interest rate	1.4	%	0.9	%	0.5	%
Expected dividend yield	1.6	%	2.1	%	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.

(g) Employee 401(k) Plans

The Company sponsors a 401(k) savings and investment plan that allows eligible U.S. employees to participate by making pre-tax contributions to the 401(k) plan ranging from 1% to 50% of eligible earnings subject to a required annual limit. The Company currently matches 100% of the first 4% of the employee’s contribution and 50% of the next 2%, up to a $4,000 maximum contribution effective from January 1, 2018. The Company made matching contributions to employees of $4.6 million in fiscal 2018, $4.5 million in fiscal 2017 and $4.9 million in fiscal 2016. As of February 3, 2018, the 401(k) plan offers a variety of investment alternatives, representing different asset classes. Employees may not invest in the Company’s common shares through the 401(k) plan.

The Company also has voluntary defined contribution plans in various non-U.S. locations. In connection with these plans, the Company made contributions on behalf of employees totaling $12.3 million, $11.8 million and $14.5 million during fiscal 2018, 2017 and 2016, respectively.