SHARE-BASED COMPENSATION PLANS

6 Months Ended

Mar. 31, 2013

SHARE-BASED COMPENSATION PLANS [Abstract]

SHARE-BASED COMPENSATION PLANS

11. SHARE-BASED COMPENSATION PLANS

We issue share-based payments under the following programs: our 2012 Omnibus Incentive Plan (OIP) and our Cabot Microelectronics Corporation 2007 Employee Stock Purchase Plan, as Amended and Restated January 1, 2010 (ESPP).  Prior to March 2012, when our stockholders approved our new OIP, we issued share-based payments under our Second Amended and Restated Cabot Microelectronics Corporation 2000 Equity Incentive Plan, as amended and restated September 23, 2008 (EIP); our ESPP, and, pursuant to our EIP, our Directors' Deferred Compensation Plan, as amended September 23, 2008, and our 2001 Executive Officer Deposit Share Program.  For additional information regarding these programs, refer to Note 11 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2012.  Other than the ESPP, all share-based payments granted beginning March 6, 2012 are being made from the OIP, and the EIP is no longer available for any awards.

We record share-based compensation expense for all share-based awards, including stock option grants, restricted stock and restricted stock unit awards and employee stock purchases.  We calculate share-based compensation expense using the straight-line approach based on awards ultimately expected to vest, which requires the use of an estimated forfeiture rate.  Our estimated forfeiture rate is primarily based on historical experience, but may be revised in future periods if actual forfeitures differ from the estimate.  We use the Black-Scholes model to estimate the grant date fair value of our stock options and employee stock purchases.  This model requires the input of highly subjective assumptions, including the price volatility of the underlying stock, the expected term of our stock options and the risk-free interest rate.  We estimate the expected volatility of our stock options based on a combination of our stock's historical volatility and the implied volatilities from actively-traded options on our stock.  We calculate the expected term of our stock options using historical stock option exercise data, and we add a slight premium to this expected term for employees who meet the definition of retirement eligible pursuant to their grants during the contractual term of the grant.  The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of grant.

Share-based compensation expense for the three and six months ended March 31, 2013, and 2012, was as follows:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2013		2012		2013		2012
Cost of goods sold	$	403	$	366	$	915	$	747
Research, development and technical		310		255		676		545
Selling and marketing		324		292		710		769
General and administrative		2,772		3,113		5,002		5,358
Total share-based compensation expense		3,809		4,026		7,303		7,419
Tax benefit		1,345		1,300		2,531		2,356
Total share-based compensation expense, net of tax	$	2,464	$	2,726	$	4,772	$	5,063

Our non-employee directors received annual equity awards in March 2013, pursuant to the OIP.  The award agreements provide for immediate vesting of the award at the time of termination of service for any reason other than by reason of Cause, Death, Disability or a Change in Control, as defined in the OIP, if at such time the non-employee director has completed an equivalent of at least two full terms as a director of the Company, as defined in the Company's bylaws.  Five of the Company's non-employee directors had completed at least two full terms of service as of the date of the March 2013 award.  Consequently, the requisite service period for the award has already been satisfied and we recorded the fair value of $755 of the awards to these five directors to share-based compensation expense in the fiscal quarter ended March 31, 2013 rather than recording that expense over the one-year vesting period stated in the award agreement, as is done for the other three non-employee directors.

For additional information regarding the estimation of fair value, refer to Note 11 of "Notes to the Consolidated Financial Statements" included in Item 8 of Part II of our annual report on Form 10-K for the fiscal year ended September 30, 2012.