18)

Stock-Based Compensation

Employee Stock Purchase Plans

The Company’s Fourth Restated 1999 Employee Stock Purchase Plan (the “Purchase Plan”) authorizes the issuance of up to an aggregate of 1,950,000 shares of Common Stock to participating employees. Offerings under the Purchase Plan commence on June 1 and December 1 and terminate, respectively, on November 30 and May 31. Under the Purchase Plan, eligible employees may purchase shares of Common Stock through payroll deductions of up to 10% of their compensation or up to an annual maximum amount of $21,250. The price at which an employee’s purchase option is exercised is the lower of (1) 85% of the closing price of the Common Stock on the NASDAQ Global Select Market on the day that each offering commences, or (2) 85% of the closing price on the day that each offering terminates. During 2013 and 2012, the Company issued 138,674 and 141,975 shares, respectively, of Common Stock to employees who participated in the Purchase Plan at an exercise price of $20.42 and $23.96 per share in 2013 and $22.40 and $22.01 per share in 2012. As of December 31, 2013, there were 212,074 shares reserved for future issuance under the Purchase Plan.

The Company’s Third Amended and Restated International Employee Stock Purchase Plan (the “Foreign Purchase Plan”) authorizes the issuance of up to an aggregate of 400,000 shares of Common Stock to participating employees. Offerings under the Foreign Purchase Plan commence on June 1 and December 1 and terminate, respectively, on November 30 and May 31. Under the Foreign Purchase Plan, eligible employees may purchase shares of Common Stock through payroll deductions of up to 10% of their compensation or up to an annual maximum amount of $21,250. The price at which an employee’s purchase option is exercised is the lower of (1) 85% of the closing price of the Common Stock on the NASDAQ Global Select Market on the day that each offering commences, or (2) 85% of the closing price on the day that each offering terminates. During 2013 and 2012, the Company issued 33,929 and 29,954 shares, respectively, of Common Stock to employees who participated in the Foreign Purchase Plan at an exercise price of $20.42 and $23.96 per share in 2013 and $22.40 and $22.01 per share in 2012. As of December 31, 2013, there were 62,541 shares reserved for future issuance under the Foreign Purchase Plan.

Equity Incentive Plans

The Company has granted options to employees under the 2004 Stock Incentive Plan (the “2004 Plan”) and under the Second Restated 1995 Stock Incentive Plan (the “1995 Plan”), and to directors under the 1997 Director Stock Plan (the “1997 Director Plan”) (collectively, the “Plans”). The Company has also granted restricted stock units (“RSU“s) to employees and directors under the 2004 Plan. The Plans are administered by the Compensation Committee of the Company’s board of directors.

The Company’s equity incentive Plans are intended to attract and retain employees and to provide an incentive for them to assist the Company to achieve long-range performance goals and to enable them to participate in the long-term growth of the Company. Employees may be granted RSUs, options to purchase shares of the Company’s stock and other equity incentives under the Plans.

The Company’s 2004 Plan was adopted by the board of directors on March 4, 2004 and approved by the stockholders on May 13, 2004. As of December 31, 2013, there were 15,000,000 shares authorized for issuance under the 2004 Plan. The Company may grant options, RSUs, stock appreciation rights and other stock-based awards to employees, officers, directors, consultants and advisors under the 2004 Plan. As of December 31, 2013, there were 10,916,285 shares available for future grants under the 2004 Plan.

The Company’s 1995 Plan expired in November 2005 and no further awards may be granted under the 1995 Plan, although there are still outstanding options which may be exercised under this plan.

The Company’s 1997 Director Plan expired in February 2007 and no further awards may be granted under the 1997 Director Plan, although there are still outstanding options which may be exercised under this plan.

Stock options were granted at an exercise price equal to 100% of the fair value of the Company’s Common Stock at the date of grant. Generally, stock options granted to employees under the Plans in 2001 and after, vested 25% after one year and 6.25% per quarter thereafter, and expire 10 years after the grant date. Options granted to directors generally vested at the earliest of (1) one day prior to the next annual meeting, (2) 13 months from date of grant, or (3) the effective date of an acquisition. All stock options are fully vested as of December 31, 2013. RSUs granted in 2013 and 2012 generally vest 33.3% per year after the date of grant. RSUs granted in 2010 and prior, generally vest three years from the date of grant. RSUs granted to employees who are at least 60 years old and have a combined years of age plus years of service (as defined) equal to 70 years or more, are expensed immediately. RSUs granted to directors generally vest at the earliest of (1) one day prior to the next annual meeting, (2) 13 months from date of grant, or (3) the effective date of an acquisition. Certain equity incentive awards involve RSUs that are subject to performance conditions (“performance shares”) under the Company’s stock incentive plans. Such performance shares are available, subject to time-based vesting conditions if, and to the extent that, financial or operational performance criteria for the applicable period are achieved. Accordingly, the number of performance shares earned will vary based on the level of achievement of financial or operational performance objectives for the applicable period.

The following table presents the activity for RSUs under the Plans:


	Years Ended December 31,
	2013					2012					2011
	Non-vested RSUs			Weighted Average Grant Date Fair Value		Non-vested RSUs			Weighted Average Grant Date Fair Value		Non-vested RSUs			Weighted Average Grant Date Fair Value
Non-vested RSUs — beginning of period		942,203		$	26.58		1,115,005		$	21.50		1,327,306		$	18.34
Granted		501,954		$	26.81		426,583		$	29.14		397,492		$	30.27
Vested		(688,376	)	$	25.09		(557,314	)	$	19.01		(569,891	)	$	20.42
Forfeited or expired		(23,747	)	$	27.17		(42,071	)	$	22.36		(39,902	)	$	18.36

Non-vested RSUs — end of period		732,034		$	28.08		942,203		$	26.58		1,115,005		$	21.50

The following table presents the activity for options under the Plans:


	Years Ended December 31,
	2013					2012					2011
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding — beginning of period		255,649		$	21.74		420,712		$	21.97		1,793,214		$	22.38
Exercised		(88,336	)	$	21.15		(123,650	)	$	18.78		(1,351,684	)	$	22.46
Forfeited or expired		(31,580	)	$	27.04		(41,413	)	$	32.32		(20,818	)	$	22.66

Outstanding — end of period		135,733		$	20.88		255,649		$	21.74		420,712		$	21.97


Exercisable at end of period		135,733		$	20.88		255,649		$	21.74		420,712		$	21.97

The following table summarizes information with respect to options outstanding and exercisable under the Plans at December 31, 2013:


	Options Outstanding and Exercisable
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value (In Thousands)
$14.45 – $29.93		135,733	$	20.88		0.95	$	1,227

The weighted average remaining contractual life of options exercisable was 0.95 years at December 31, 2013.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $29.92 as of December 31, 2013, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options exercisable as of December 31, 2013 was 105,873.

The total cash received from employees as a result of employee stock option exercises during the years 2013 and 2012 was approximately $1,869 and $2,322, respectively. In connection with these exercises, the tax benefit realized by the Company for the years 2013 and 2012 were approximately $94 and $299, respectively.

The Company settles employee stock option exercises and restricted stock vesting with newly issued common shares.

Stock-Based Compensation Expense

The Company recognized the full impact of its share-based payment plans in the consolidated statements of operations and comprehensive income for the years 2013, 2012 and 2011. As of December 31, 2013 and 2012, the Company capitalized $471 of such cost on its consolidated balance sheet. The following table reflects the effect of recording stock-based compensation for the years 2013, 2012 and 2011:


	Years Ended December 31,
	2013			2012			2011
Stock-based compensation expense by type of award:
Restricted stock	$	12,982		$	11,836		$	10,126
Employee stock purchase plan		1,010			1,195			1,099

Total stock-based compensation		13,992			13,031			11,225
Tax effect on stock-based compensation		(495	)		(1,862	)		(5,019	)

Net effect on net income	$	13,497		$	11,169		$	6,206

Effect on net earnings per share:
Basic	$	0.25		$	0.21		$	0.12

Diluted	$	0.25		$	0.21		$	0.12

The pre-tax effect within the consolidated statements of operations and comprehensive income of recording stock-based compensation for the years 2013, 2012 and 2011 was as follows:


	Years Ended December 31,
	2013		2012		2011
Cost of sales	$	2,038	$	1,867	$	1,511
Research and development expense		1,902		2,278		2,197
Selling, general and administrative expense		10,052		8,886		7,517

Total pre-tax stock-based compensation expense	$	13,992	$	13,031	$	11,225

Valuation Assumptions

The Company determines the fair value of restricted stock based on the closing market price of the Company’s Common Stock on the date of the award, and estimates the fair value of stock options and employee stock purchase rights using the Black-Scholes valuation model. Such values are recognized as expense on a straight-line basis over the requisite service periods, net of estimated forfeitures except for retirement eligible employees in which the Company expenses the fair value of the grant in the period the grant is issued. The estimation of stock-based awards that will ultimately vest requires significant judgment. The Company considers many factors when estimating expected forfeitures, including types of awards and historical experience. Actual results, and future changes in estimates, may differ substantially from the Company’s current estimates.

There were no options granted during 2013, 2012 and 2011. The total intrinsic value of options exercised during 2013, 2012 and 2011 was approximately $684, $1,228 and $9,458, respectively.

The weighted average fair value per share of employee stock purchase rights granted in 2013, 2012 and 2011 was $5.76, $7.24 and $5.87, respectively. The fair value of the employees’ purchase rights was estimated using the Black-Scholes option-pricing model with the following weighted average assumptions:


	Years Ended December 31,
	2013			2012			2011
Employee stock purchase rights:
Expected life (years)		0.5			0.5			0.5
Risk-free interest rate		0.1	%		0.1	%		0.2	%
Expected volatility		27.7	%		32.2	%		31.9	%
Expected annual dividends per share	$	0.64		$	0.62		$	0.60

Expected volatilities for 2013, 2012 and 2011 are based on a combination of implied and historical volatilities of the Company’s Common Stock; the expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

The total intrinsic value of options exercised and the total fair value of shares vested during 2013, 2012 and 2011 was approximately $19,221, $16,498 and $27,199, respectively. As of December 31, 2013, the unrecognized compensation cost related to restricted stock was approximately $10,934, and will be recognized over an estimated weighted average amortization period of 1.33 years.