4. Share-Based Compensation:

The following table presents share-based compensation expense included in our unaudited condensed consolidated statements of operations:


	Three Months Ended April 30,				Nine Months Ended April 30,
	2013		2012		2013		2012
Cost of product sales	$	127	$	142	$	533	$	461
Cost of engineering sales		223		-		918		-
Research and product development		340		633		1,508		2,157
Selling and marketing		181		238		713		912
General and administrative		1,133		1,302		4,285		4,186
Total share-based compensation expense before tax	$	2,004	$	2,315	$	7,957	$	7,716

We recognize compensation expense on performance-based restricted stock awards with earnings per share, or “EPS,” related and total shareholder return, or “TSR,” related conditions along with time-based stock options and restricted stock awards as follows:


	Three Months Ended April 30,				Nine Months Ended April 30,
	2013		2012		2013		2012
Performance based EPS related condition compensation expense	$	9	$	557	$	2,504	$	3,225
Performance based TSR related condition compensation expense		815		1,067		2,422		2,644
Total performance-based stock compensation expense		824		1,624		4,926		5,869
Time based stock options and restricted stock awards		1,180		691		3,031		1,847
Total share-based compensation expense before tax	$	2,004	$	2,315	$	7,957	$	7,716

We estimate the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of our stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and our expected annual dividend yield. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our outstanding stock options granted during fiscal years 2013 and 2012.

During the three months ended April 30, 2013 and 2012, we granted 16,611 and 2,458 non-qualified stock options, respectively, with weighted average grant-date fair values of $27.90 and $20.50, respectively. During the nine months ended April 30, 2013 and 2012, we granted 115,429 and 125,684 non-qualified stock options, respectively, with weighted average grant-date fair values of $25.25 and $16.44, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes valuation model with the following assumptions for the three and nine months ended April 30, 2013 and 2012:


	Three Months Ended April 30,						Nine Months Ended April 30,
	2013			2012			2013			2012
Expected option term (1)		5.47 years			5.37 years			5.42 years			5.34 years
Expected volatility factor (2)		41	%		42	%		41	%		42	%
Risk-free interest rate (3)		0.91	%		0.89	%		0.80	%		0.95	%
Expected annual dividend yield (4)		0.52	%		0.71	%		0.57	%		0.87	%

(1)	The option life term factor was estimated using historical data.

(2)	The expected volatility factor for each grant is determined based on the review of historical daily price changes of our common stock over the expected option term.

(3)	The risk free interest rate for periods equal to the expected term of the stock option is based on the U.S. Treasury yield curve in effect at the time of grant.

(4)	The expected annual dividend yield is calculated by dividing the expected annual dividends by the stock price on the date of grant.

We had 318,378 and 454,959 performance contingent restricted stock units, or “RSUs”, outstanding as of April 30, 2013 and 2012, respectively. These RSUs represent the target awards and vest if specific pre-established levels of performance have been achieved at the end of a three-year performance cycle. The three-year performance cycles for RSUs outstanding at April 30, 2013 end on July 31, 2013, 2014, and 2015. The three-year performance cycles for restricted stock shares/units outstanding at April 30, 2012 ended or will end on July 31, 2012, 2013, and 2014. The actual number of RSUs to be issued will be determined at the end of the three-year performance cycle and can range from zero to 200% of the target award. We grant performance contingent RSUs with either an EPS related performance condition or a TSR related performance condition as determined against a specified peer group. During the three and nine months ended April 30, 2013, we granted 537 and 31,806 RSUs, respectively, with an EPS related performance condition and 413 and 24,469 RSUs, respectively, with a TSR related performance condition. During the three and nine months ended April 30, 2012, we granted 819 and 37,493 RSUs, respectively, with an EPS related performance condition and 819 and 37,493 RSUs, respectively, with a TSR related performance condition. As of April 30, 2013, of the 318,378 RSUs outstanding, 188,264 had an EPS related performance condition and 130,114 had a TSR related performance condition.

We estimate the fair value of RSUs that vest based on time or with an EPS related condition by the quoted market price of our common stock on the date of grant. We estimate the fair value of TSR performance based RSUs based on the use of a Monte-Carlo Simulation model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

For RSUs with an EPS related condition, we recognize compensation expense over the performance period, net of estimated forfeitures, based on the number of RSUs that are deemed probable of vesting at the end of the three-year performance cycle. This probability assessment is done each quarter and changes in forecast estimates and actual results can result in significant expense fluctuations due to the cumulative catch-up adjustment.

For RSUs with a TSR related condition, we recognize compensation expense on a straight-line basis, net of estimated forfeitures, over an average derived service period of 2.7 years for the awards granted in fiscal years 2011, 2012, and 2013. The total compensation expense for RSUs with a TSR related condition is not contingent on the performance outcome. The weighted average grant date fair value of RSUs granted with a TSR related condition was $106.45 and $97.31 for the nine months ended April 30, 2013 and 2012, respectively. The fair value of the RSUs with a TSR related condition at date of grant was estimated using a Monte-Carlo Simulation model with the following assumptions:


	Nine Months Ended April 30,
	2013			2012
Stock Price (1)	$	70.04		$	57.81
Expected volatility factor (2)		28	%		29	%
Risk-free interest rate (3)		0.32	%		0.33	%
Expected annual dividend yield (4)		0.00	%		0.00	%

(1)	The stock price is the closing price of our common stock on the date of grant.

(2)	The expected volatility factor for each grant is determined based on the historical volatility for the peer group companies over a period equal to the remaining term of the performance period from the date of grant for all awards.

(3)	The risk free interest rate for periods equal to the performance period is based on the U.S. Treasury yield curve in effect at the time of grant.

(4)	Dividends are considered reinvested when calculating TSR. For the purpose of the fair value model, the dividend yield is therefore considered to be 0%.

During the nine months ended April 30, 2013, we issued approximately $5,086 of common stock pursuant to the exercise of stock options and employee stock purchase plan, and vesting of restricted stock. We have also repurchased shares from employees to cover their taxes on vested employee restricted stock awards of $4,498 during the nine months ended April 30, 2013.