Stock-Based Compensation Expense

6 Months Ended

Jul. 03, 2011

Stock-Based Compensation Expense [Abstract]

Stock-Based Compensation Expense

NOTE 11:   Stock-Based Compensation Expense

The Company’s share-based payments that result in compensation expense consist solely of stock option grants. As of July 3, 2011, the Company had 7,063,000 shares available for grant under two stock option plans: the 2001 General Stock Option Plan (5,570,640) and the 2007 Stock Option and Incentive Plan (1,492,360). Each of these plans expires ten years from the date the plan was approved. The 2001 General Stock Option Plan will expire in December of 2011. 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.

The following table summarizes the Company’s stock option activity for the six-month period ended July 3, 2011:

					Weighted-
			Weighted-		Average		Aggregate
			Average		Remaining		Intrinsic
	Shares		Exercise		Contractual		Value
	(in thousands)		Price		Term (in years)		(in thousands)
Outstanding as of December 31, 2010		4,318	$	20.05
Granted		927		30.40
Exercised		(1,004)		20.87
Forfeited or expired		(52)		22.00
Outstanding as of July 3, 2011		4,189		$     22.15		7.2		$       58,091
Exercisable as of July 3, 2011		1,638		$     20.36		5.1		$       25,707

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

	Three-months Ended				Six-months Ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010
Risk-free rate		3.6%		3.2%		3.6%		3.4%
Expected dividend yield		1.0%		1.4%		1.0%		1.3%
Expected volatility		42%		44%		42%		44%
Expected term (in years)		5.2		5.2		5.4		5.3

Risk-free rate
The risk-free rate was based upon a U.S. 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 values of stock options granted during the three-month periods ended July 3, 2011 and July 4, 2010 were $11.95 and $6.89, respectively. The weighted-average grant-date fair values of stock options granted during the six-month periods ended July 3, 2011 and July 4, 2010 were $11.77 and $7.10, respectively.

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 cumulative effect of this change resulted in a reduction in compensation expense of approximately $80,000.

The total stock-based compensation expense and the related income tax benefit recognized for the three-month period ended July 3, 2011 were $1,957,000 and $654,000, respectively, and for the three-month period ended July 4, 2010 were $427,000 and $143,000, respectively. The total stock-based compensation expense and the related income tax benefit recognized for the six-month period ended July 3, 2011 were $4,309,000 and $1,445,000, respectively, and for the six-month period ended July 4, 2010 were $394,000 and $124,000, respectively. No compensation expense was capitalized as of July 3, 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):

	Three-months Ended				Six-months Ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010
Product cost of revenue		$        105		$            14		$       270		$         72
Service cost of revenue		39		11		109		12
Research, development, and engineering		529		83		1,338		334
Selling, general, and administrative		1,284		319		2,592		(24)
	$	1,957		$          427		$       4,309		$       394

The total intrinsic values of stock options exercised for the three-month periods ended July 3, 2011 and July 4, 2010 were $7,969,000 and $38,000, respectively. The total intrinsic values of stock options exercised for the six-month periods ended July 3, 2011 and July 4, 2010 were $12,637,000 and $51,000, respectively.

As of July 3, 2011, total unrecognized compensation expense related to non-vested stock options was $9,939,000, which is expected to be recognized over a weighted-average period of 1.9 years.