Share-Based Awards

3 Months Ended

Jun. 30, 2011

10. Share-Based Awards

Employee Stock Option Plans

In September 1998, the Company’s shareholders approved a stock option plan (the “1998 Plan”) under which 4,000,000 shares of common stock were reserved for the issuance of options. The 1998 Plan provides that employees, directors and consultants of the Company may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted options to purchase shares of common stock. The exercise price of each option granted was determined by the Board of Directors at the date of grant, and options under the 1998 Plan expire no later than ten years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Certain option grants to directors became exercisable three months from the date of grant. Upon an acquisition of the Company by merger or asset sale, each outstanding option may be subject to accelerated vesting under certain circumstances. The 1998 Plan terminated on December 31, 2007. As of June 30, 2011, there were 173,931 outstanding options related to this Plan.

In October 2005, the Company’s shareholders approved a stock option and incentive plan (the “2005 Plan”) under which 2,400,000 shares of common stock were reserved for the issuance of awards, including stock options, incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, performance units (including performance options) and other share-based awards. The 2005 Plan provides that employees, directors and consultants of the Company may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted awards to acquire shares of common stock. The exercise price of each option award shall be determined by the Board of Directors at the date of grant in accordance with the terms of the 2005 Plan, and under the 2005 Plan awards expire no later than ten years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Upon an acquisition of the Company by merger or asset sale, each outstanding option may be subject to accelerated vesting under certain circumstances. The 2005 Plan terminates on May 25, 2015, unless terminated earlier by the Board of Directors. As of June 30, 2011, there were 667,595 outstanding options and 1,556,924 shares available for future grant related to this Plan.

A summary of stock option transactions during the three months ended June 30, 2011 and 2010 is as follows:


				Weighted-		Weighted-
				Average		Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			per Share		Life (years)		(in thousands)
Outstanding, April 1, 2011		698,778		$	44.40		3.9
Granted		229,700			86.08		7.9
Exercised		(86,952	)		39.42		1.8	$	4,163
Forfeited/Canceled		—			—		—


Outstanding, June 30, 2011		841,526		$	56.29		5.0	$	26,097


Vested and expected to vest, June 30, 2011		819,212		$	56.14		5.0	$	25,530


Exercisable, June 30, 2011		273,873		$	36.23		2.2	$	13,986

The Company accounts for share-based compensation in accordance with ASC 718 and utilizes the Black-Scholes valuation model for estimating the fair value of share-based compensation with the following assumptions:


	Three Months			Three Months
	Ended			Ended
	June 30, 2011			June 30, 2010
Expected life	4.3 years			4.2 years
Expected volatility		41.2	%		44.6% - 44.7	%
Expected dividends		1.6	%		2.1	%
Risk-free rate		1.8	%		2.0% - 2.1	%

The weighted average grant date fair value of stock options granted during the three months ended June 30, 2011 and 2010 was $26.64 and $18.36 per share, respectively.

The Company issues new shares to satisfy option exercises. Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 3.3% and 2.4% for employee options for the three months ended June 30, 2011 and 2010, respectively, and 0.0% for director options for the three months ended June 30, 2011 and 2010. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

During the three months ended June 30, 2011, a total of 229,700 options were granted under the 2005 Plan at an exercise price equal to the market price of the Company’s common stock on the date of grant. A summary of stock options granted under the 2005 Plan during fiscal years 2012 and 2011 is as follows:

Number of

Vesting

Option Grant Date

Exercise Price

Terms (1)

Expires

May 31, 2011

229,700

86.08

Five years

May 31, 2019

Fiscal year 2012 option grants

229,700

November 29, 2010

10,000

64.32

Five years

November 29, 2018

August 3, 2010

5,000

55.24

Five years

August 3, 2018

June 4, 2010

25,000

56.29

Five years

June 4, 2018

June 2, 2010

15,000

58.62

Five years

June 2, 2018

Fiscal year 2011 option grants

55,000


(1)		Options vest in equal annual installments on each grant anniversary date commencing one year following the date of grant.

Performance-Based Awards

On May 25, 2011, the Board of Directors approved its fiscal year 2012 equity incentive program for certain employees to be awarded options to purchase the Company’s common stock. The maximum number of options available under the equity incentive program plan is 300,000, of which 150,000 are reserved for the Company’s named executive officers and 150,000 for non-executive employees of the Company. Under the program, executives are eligible to receive options based on meeting certain target increases in earnings per share performance and revenue growth during fiscal year 2012. Under the program, the non-executive employees are eligible to receive options based on satisfying certain management established criteria and recommendations of senior management. The options shall be issued pursuant to one of the Company’s shareholder approved option plans, have an exercise price equal to the closing price of the Company’s shares on the date of grant, a term of eight years and vesting in five equal annual installments commencing one year following the date of grant.

Compensation expense associated with the performance based awards under the Company’s equity incentive plans are initially based on the number of options expected to vest after assessing the probability that certain performance criteria will be met. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions. The Company utilized the Black-Scholes option valuation model and recorded stock compensation expense related to the performance based awards of approximately $213 and $18 during the three months ended June 30, 2011 and 2010, respectively, using the assumptions below.


	Three Months			Three Months
	Ended			Ended
	June 30, 2011			June 30, 2010
Expected life	4.3 years			4.2 years
Expected volatility		41.2	%		44.4	%
Expected dividends		1.8	%		2.1	%
Risk-free rate		1.8	%		1.8	%

Non-vested stock option award activity, including employee stock options and performance-based awards, during the three months ended June 30, 2011 is summarized as follows:


				Weighted-
				Average
	Non-Vested			Grant-Date
	Number of			Fair Value
	Shares			per Share
Outstanding, April 1, 2011		401,518		$	16.17
Granted		229,700			26.64
Vested		(63,565	)		12.01
Forfeited/Canceled		—			—


Outstanding, June 30, 2011		567,653		$	20.87

As of June 30, 2011, $9,284 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average period of 6.4 years. This amount does not include the cost of new options that may be granted in future periods or any changes in the Company’s forfeiture percentage. The total fair value of options vested during the three months ended June 30, 2011 and 2010 was $764 and $936, respectively.

Restricted Stock Units

On May 27, 2009, the Board of Directors approved its Outside Director Compensation Plan, whereby each non-employee Director is to be awarded shares of restricted stock units upon election or re-election to the Board. The restricted stock units are awarded under the 2005 Plan. Such restricted stock units vest in two equal, annual installments on the first and second anniversaries of the grant date and are nontransferable for one year following vesting. Upon each vesting of the award, one share of common stock shall be issued for each restricted stock unit. The weighted-average grant date fair value for the restricted stock units was estimated using the market price of its common stock on the date of grant. The fair value of these restricted stock units is amortized on a straight-line basis over the vesting period.

As of June 30, 2011, 17,146 restricted stock units have been awarded under this Plan and approximately $103 and $73 of compensation expense related to these restricted stock units was recorded during the three months ended June 30, 2011 and 2010, respectively. Restricted stock units activity for the three months ended June 30, 2011 is summarized as follows:


			Weighted-
			Average
			Grant-Date
	Number of		Fair Value
	Shares		per Share
Outstanding, April 1, 2011		11,448	$	54.18
Granted		—		—
Vested		—		—


Outstanding, June 30, 2011		11,448	$	54.18

As of June 30, 2011, $265 of total unrecognized compensation costs related to restricted stock units is expected to be recognized over a weighted-average period of 0.8 years. This amount does not include the cost of new restricted stock units that may be granted in future periods.