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Stock Based Compensation
 12 Months Ended
Dec. 31, 2011
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

NOTE 14:  Stock-Based Compensation

Stock Option Plans

The Company’s share-based payments that result in compensation expense consist solely of stock option grants. As of December 31, 2011, the Company had 6,272,762 shares available for grant under two stock option plans: the 2001 General Stock Option Plan (4,906,777) and the 2007 Stock Option and Incentive Plan (1,365,985). Each of these plans expires ten years from the date the plan was approved. In December 2011, the 2001 General Stock Option plan received shareholder approval for an amendment and restatement of the plan, extending the plan until September 2021. Generally, stock options are granted with an exercise price equal to the market value of the Company’s common stock at the grant date, vest over four years based upon continuous service, and expire ten years from the grant date.

In November 2009, the Company commenced a cash tender offer for certain underwater stock options held by employees, officers, and directors. Included in the tender offer were 5,153,307 outstanding stock options having an exercise price equal to or greater than $23.00 per share. These options were granted under the Company’s 2007 Stock Option and Incentive Plan, 1998 Stock Incentive Plan, as amended, and 1998 Non-Employee Director Stock Option Plan, as amended. Under the offer, eligible options with exercise prices of $23.00 and greater were eligible to receive a cash payment ranging from $0.05 to $3.42 per share. In December 2009, options to purchase a total of 4,900,694 shares of the Company’s common stock were tendered under the offer for an aggregate purchase price of $9,158,000. As a result of the tender offer, the Company incurred stock-based compensation expense of $2,657,000 during the fourth quarter of 2009, representing the accelerated expense associated with unvested stock options that were tendered by employees.

The following table summarizes the Company’s stock option activity for the year ended December 31, 2011:

 

 

                                 
    Shares
(in thousands)		     Weighted-
Average
Exercise
Price		     Weighted-
Average
Remaining
Contractual
Term
(in years)		     Aggregate
Intrinsic Value
(in thousands)		  
       

Outstanding as of December 31, 2010

     4,318     $ 20.05                  

Granted

     1,769       31.83                  

Exercised

     (1,501 )      20.67                  

Forfeited or expired

     (113 )      22.26                  
   

 

 

                          

Outstanding as of December 31, 2011

     4,473     $ 24.48       7.5     $ 50,680  
   

 

 

    

 

 

    

 

 

    

 

 

  

Exercisable as of December 31, 2011

     1,187     $ 20.51       4.8     $ 18,211  
   

 

 

    

 

 

    

 

 

    

 

 

  

The fair values of stock options granted in each period presented were estimated using the following weighted-average assumptions:

 

 

                         
    Year Ended December 31,  
    2011     2010     2009  

Risk-free rate

     2.9 %      3.3 %      3.3 % 

Expected dividend yield

     1.1 %      1.3 %      1.4 % 

Expected volatility

     43 %      44 %      43 % 

Expected term (in years)

     5.5       5.3       4.8  

Risk-free rate

The risk-free rate was based upon a treasury instrument whose term was consistent with the contractual term of the option.

Expected dividend yield

The current dividend yield was calculated by annualizing the cash dividend declared by the Company’s Board of Directors for the current quarter and dividing that result by the closing stock price on the grant date. The current dividend yield was then adjusted to reflect the Company’s expectations relative to future dividend declarations.

 

Expected volatility

The expected volatility was based upon a combination of historical volatility of the Company’s common stock over the contractual term of the option and implied volatility for traded options of the Company’s stock.

Expected term

The expected term was derived from the binomial lattice model from the impact of events that trigger exercises over time.

The weighted-average grant-date fair value of stock options granted was $12.32 in 2011, $7.33 in 2010, and $5.42 in 2009.

The Company stratifies its employee population into two groups: one consisting of senior management and another consisting of all other employees. The Company currently expects that approximately 66% of its stock options granted to senior management and 68% of its options granted to all other employees will actually vest. Therefore, the Company currently applies an estimated forfeiture rate of 13% to all unvested options for senior management and a rate of 14% for all other employees. The Company revised its estimated forfeiture rates in the first quarter of 2011 and the second quarter of 2010, resulting in a reduction to compensation expense of $80,000 and $600,000, respectively.

The total stock-based compensation expense and the related income tax benefit recognized was $8,068,000 and $2,660,000, respectively, in 2011, $3,027,000 and $996,000, respectively, in 2010, and $9,223,000 and $3,070,000, respectively, in 2009. No compensation expense was capitalized as of December 31, 2011 or December 31, 2010.

The following table details the stock-based compensation expense by caption for each period presented on the Consolidated Statements of Operations (in thousands):

 

 

                         
    Year Ended December 31,  
    2011     2010     2009  

Product cost of revenue

   $ 456     $ 206     $ 532  

Service cost of revenue

     172       72       242  

Research, development, and engineering

     2,268       1,020       2,163  

Selling, general, and administrative

     5,172       1,729       6,286  
   

 

 

    

 

 

    

 

 

  
    $     8,068     $     3,027     $     9,223  
   

 

 

    

 

 

    

 

 

  

The total intrinsic value of stock options exercised was $20,108,000 in 2011, $10,918,000 in 2010, and $3,000 in 2009. The total fair value of stock options vested was $10,202,000 in 2011, $13,159,000 in 2010, and $14,177,000 in 2009.

As of December 31, 2011, total unrecognized compensation expense related to non-vested stock options was $13,289,000, which is expected to be recognized over a weighted-average period of 1.7 years.