Stock Based Compensation

3 Months Ended

Apr. 01, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 10: Stock-Based Compensation

The Company’s share-based payments that result in compensation expense consist solely of stock option grants. As of April 1, 2012, the Company had 6,294,849 shares available for grant under two stock option plans: the 2001 General Stock Option Plan (4,928,864) and the 2007 Stock Option and Incentive Plan (1,365,985). Each of these plans expires ten years from the date the plan was approved. In December 2011, the 2001 General Stock Option plan received shareholder approval for an amendment and restatement of the plan, extending the plan until September 2021. 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 quarter ended April 1, 2012:

	Shares (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2011		4,473		$	24.48
Granted		5			44.75
Exercised		(614	)		21.46
Forfeited or expired		(37	)		22.25
Outstanding as of April 1, 2012		3,827		$	25.06		7.7	$	66,253
Exercisable as of April 1, 2012		1,190		$	21.11		5.7	$	25,337

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

	Quarter Ended
	April 1,   2012			April 3,   2011
Risk-free rate		2.0	%		3.6	%
Expected dividend yield		1.2	%		1.0	%
Expected volatility		44	%		42	%
Expected term (in years)		5.7			5.4

Risk-free rate

The risk-free rate was based upon a 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 quarter ended April 1, 2012 and April 3, 2011 were $12.98 and $11.75, 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 67% of its stock options granted to senior management and 66% of its options granted to all other employees will actually vest. Therefore, the Company currently applies an estimated forfeiture rate of 12% to all unvested options for senior management and a rate of 14% for all other employees.

The total stock-based compensation expense and the related income tax benefit recognized was $3,314,000 and $1,087,000, respectively, for the quarter ended April 1, 2012, and $2,352,000 and $791,000, respectively, for the quarter ended April 3, 2011. No compensation expense was capitalized as of April 1, 2012 or December 31, 2011.

The following table details the stock-based compensation expense by caption for each quarter presented on the Consolidated Statements of Operations (in thousands):

	Quarter Ended
	April 1, 2012		April 3, 2011
Product cost of revenue	$	240	$	165
Service cost of revenue		68		70
Research, development, and engineering		867		809
Selling, general, and administrative		2,139		1,308
	$	3,314	$	2,352

The total intrinsic values of stock options exercised for the quarter ended April 1, 2012 and April 3, 2011 were $12,636,000 and $4,668,000, respectively. The total fair values of stock options vested for the quarter ended April 1, 2012 and April 3, 2011 were $6,399,000 and $7,002,000, respectively.

As of April 1, 2012, total unrecognized compensation expense related to non-vested stock options was $11,483,000, which is expected to be recognized over a weighted-average period of 1.8 years.