Share-Based Compensation

9 Months Ended

Sep. 30, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

13. Share-Based Compensation

The following table sets forth information with regard to the income statement recognition of share-based compensation (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Cost of revenue	$	200	$	115	$	442	$	294
Selling, general and administrative		1,734		1,398		5,164		4,206
Research and development		95		96		254		210
Share-based compensation	$	2,029	$	1,609	$	5,860	$	4,710

No share-based compensation cost was capitalized during the nine-month periods ended September 30, 2011, and 2010.

Stock Options

Stock options awarded to employees under the 2001 Stock Incentive Plan and the 2008 Equity Compensation Plan (referred to herein collectively as the “SIPs”) generally vest annually over a three-year period, have a 10-year term and have an exercise price of not less than the fair market value of the Company’s common stock at the date of grant. For stock options granted prior to 2010, the Company’s stock option agreements generally provide for accelerated vesting if there is a change in control of the Company. Effective for stock options granted in 2010 and after, the Company’s stock option agreements provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the stock option agreement.

Compensation expense for stock options is recognized on a straight-line basis over the vesting period using the fair value of each stock option estimated as of the grant date. The Company uses historical data to estimate future option exercises and employee terminations in order to determine the expected term of the stock option, where the expected term of stock option granted represents the period of time that such stock option is expected to be outstanding. Identified groups of option holders with similar historical exercise behavior are considered separately for valuation purposes. The expected term of stock options can vary for groups of option holders exhibiting different behavior. The fair value of each stock option granted to employees and nonemployee directors during the nine-month periods ended September 30, 2011, and 2010, was estimated on the date of grant using a Black-Scholes stock option valuation model, which uses a risk-free interest rate and measure of volatility, among other things, to estimate fair value. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury strip bond yield curve in effect at the time of grant. Expected volatilities are based on the historical volatility of the Company’s common stock.

For the three-month period ended September 30, 2011, the number of stock options granted was 81,001 and the weighted-average exercise price for those stock options granted was $34.83. For the three-month period ended September 30, 2010, no stock options were granted.

For the nine-month periods ended September 30, 2011 and 2010, the number of stock options granted was 154,226 and 288,544, respectively, and the weighted-average exercise price for those stock options granted was $39.21 and $22.84, respectively.

As of September 30, 2011, there was $3.0 million in total unrecognized compensation cost related to stock options granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average remaining period of 2.0 years. The weighted-average exercise price and weighted-average remaining contractual term for outstanding stock options as of September 30, 2011, were $33.11 and 5.88 years, respectively, and as of September 30, 2010, $31.78 and 6.21 years, respectively.

Service and Performance Award Units

Service award units. During the nine-month period ended September 30, 2011, the Company granted service award shares under the SIPs. These service award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) vest in four equal annual installments beginning on the first anniversary date of the grant, and (iii) for any unvested units, expire without vesting if the employee is no longer employed by the Company. For those service award units granted prior to 2010, the service award units generally provide for accelerated vesting if there is a change in control of the Company. Effective for service award units granted in 2010 and after, the service award units provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the participant’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the restricted stock unit agreement.

Compensation expense for service award units is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of September 30, 2011, there was $2.4 million of total unrecognized compensation cost related to service award units granted under the SIPs. This aggregate unrecognized cost for service award units is expected to be recognized over a weighted-average period of 2.09 years.

Additional information for the three-and nine-month periods ended September 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Number of service award shares granted during the period		—		—		18,434		—
Weighted average grant-date fair value per share		—		—	$	42.72		—
Fair value of service award shares vested during the period	$	322	$	248	$	2,536	$	2,438

Performance award units. During the nine-month periods ended September 30, 2011 and 2010, the Company granted performance award units under the SIPs. These performance award units (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12 percent, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12 percent, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) for any unvested units, expire without vesting if the recipient is no longer employed by the Company. The Company’s performance award units provide for accelerated vesting if (i) there is a change in control of the Company and (ii) the recipient’s employment terminates during the 24-month period following the effective date of the change in control for one of the reasons specified in the performance-based restricted stock unit agreement.

Compensation expense for performance award units is recognized using the fair market value of the Company’s common stock on the date of grant and on an accelerated basis. The Company recognizes expense for these performance award units under the assumption that the performance ROIC target will be achieved. If it appears such performance ROIC target will not be met, the Company will stop recognizing any further compensation cost and any previously recognized compensation cost would be reversed. As of September 30, 2011, there was $2.4 million of total unrecognized compensation cost related to performance award units granted under the SIPs. This aggregate unrecognized cost is expected to be recognized over a weighted-average period of 3.26 years.

Additional information for the three- and nine-month periods ended September 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Number of performance award shares granted during the period		29,992		—		52,503		91,553
Weighted average grant-date fair value per share	$	41.52		—	$	42.77	$	25.76
Fair value of performance award shares vested during the period		—		—	$	804		—

Deferred Stock Units

Service award grant to CEO. During the nine-month periods ended September 30, 2011 and 2010, the Company granted service-based deferred stock unit awards (“Service DSUs”) under the SIPs to its CEO. Service DSUs are issued at the fair market value of the Company’s stock on the date of grant, and generally vest annually over a four-year period on each anniversary date of the grant. The Service DSUs, if vested, will be convertible into shares of the Company’s common stock following the holder’s termination of employment. The Service DSUs provide for accelerated vesting upon termination without cause or the CEO’s retirement as defined in his employment agreement. No Service DSUs were converted into shares of the Company’s common stock during the nine-month periods ended September 30, 2011, and 2010.

Compensation expense for Service DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of September 30, 2011, there was $0.2 million of total unrecognized compensation cost related to Service DSUs. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 0.28 years.

Additional information for the three- and nine-month periods ended September 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
Service DSUs Awarded to CEO	2011		2010		2011		2010
Number of shares granted during the period		—		—		900		60,144
Weighted-average grant date fair value per share		—		—	$	44.44	$	24.94
Fair value of shares vested during the period		—		—	$	704		—

Performance award grant to CEO. During the nine-month periods ended September 30, 2011 and 2010, the Company granted performance-based deferred stock unit awards (“Performance DSUs”) under the SIPs to its CEO. These Performance DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant, (ii) will expire without vesting if the Company’s return on invested capital (“ROIC”) for the annual performance period does not exceed 12 percent, which is an approximation of the Company’s weighted average cost of capital, (iii) will, if the Company’s ROIC exceeds 12 percent, vest in four equal annual installments beginning on the first anniversary date of the grant, and (iv) provide for accelerated vesting upon termination without cause or the CEO’s retirement as defined in his employment agreement. These Performance DSUs, if vested, will be convertible into shares of the Company’s common stock, subsequent to termination of employment.

Compensation expense for Performance DSUs is recognized using the fair market value of the Company’s common stock on the date of grant and on an accelerated basis. The Company recognizes expense for these Performance DSUs under the assumption that the performance target will be achieved. If it appears such performance target will not be met, the Company will stop recognizing any further compensation cost and any previously recognized compensation cost would be reversed. As of September 30, 2011, there was $0.7 million of total unrecognized compensation cost related to Performance DSUs. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 1.20 years.

Additional information for the three- and nine-month periods ended September 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):

	Three Months Ended September 30,				Nine Months Ended September 30,
Performance DSUs Awarded to CEO	2011		2010		2011		2010
Number of shares granted during the period		—		—		24,122		23,004
Weighted-average grant date fair value per share		—		—	$	44.44	$	22.17
Fair value of shares vested during the period		—		—	$	227		—

Awards for service on Board of Directors (“Board”). The Company issues deferred stock units to its Board of Directors (“Board DSUs”) under the SIPs. These Board DSUs (i) were issued at the fair market value of the Company’s common stock on the date of grant and (ii) if vested, will be convertible to shares of the Company’s common stock subsequent to termination of service as a director. Annual grants of Board DSUs vest annually in three equal installments over a three-year period.

In addition to receiving Board DSU grants annually, the Board members have the right to elect to receive all or a portion of their retainer and meeting attendance fees as cash and/or Board DSUs, which vest immediately. Board DSUs are only granted to nonemployee Directors.

Compensation expense for Board DSUs is recognized on a straight-line basis over the vesting period using the fair market value of the Company’s common stock on the date of grant. As of September 30, 2011, there was $1.4 million of total unrecognized compensation cost related to Board DSUs granted to nonemployee directors. This aggregate unrecognized cost is expected to be recognized over the weighted-average period of 2.30 years.

Additional information for the three- and nine-month periods ended September 30, 2011, and 2010, is noted in the following table (dollars in thousands, except per share amounts):

Board DSUs and Dividend Equivalents Awarded to Board	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Number of shares granted during the period		6,232		5,901		28,798		37,577
Weighted-average grant date fair value per share	$	38.78	$	27.35	$	40.19	$	28.22
Fair value of shares vested during the period	$	113	$	39	$	624	$	115