Stock Based Compensation

6 Months Ended

Mar. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-based Compensation

Stock-based Compensation

Stock-Based Benefit Plans

The Company grants stock-based compensation awards under its 2007 Incentive Compensation Plan (the 2007 Plan) which permits the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units (RSUs), performance shares and performance units. The Company has outstanding grants under its 2012 Inducement Option Plan (the Inducement Plan) and under prior plans, though no further grants can be made under these plans. At March 31, 2013, 2,309,000 shares were available for future grant under the 2007 Plan. Options generally vest ratably over a four-year period with a 6-month or 1-year cliff vest and then vesting ratably over the remaining period. Options granted prior to October 1, 2005 expire ten years after the date of grant; options granted after October 1, 2005 expire seven years after the date of the grant. RSUs generally vest annually over periods ranging from two years to four years based upon continued employment with the Company.

In addition, the Company has an Employee Stock Purchase Plan (ESPP) which permits eligible employees to purchase the Company’s common stock through payroll deductions. As approved by the Board of Directors, effective August 1, 2010, shares under the ESPP will be purchased at a price equal to 85% of the lesser of the fair market value of the Company’s common stock as of the first day or the last day of each six-month offering period. The offering periods under the ESPP commence on approximately February 1 and August 1 of each year. At March 31, 2013, 713,000 shares were available for future issuance under the ESPP.

Stock-Based Compensation

The following table outlines the effects of total stock-based compensation.

	Three Months Ended March 31,				Six Months Ended March 31,
	2013		2012		2013		2012
	(In thousands)
Stock-based compensation
Cost of sales	$	44	$	33	$	87	$	66
Research and development	577		343		1,099		658
Selling, general and administrative	848		886		1,723		1,723
Total stock-based compensation	1,469		1,262		2,909		2,447
Tax effect on stock-based compensation	—		—		—		—
Net effect on net income	$	1,469	$	1,262	$	2,909	$	2,447

As of March 31, 2013, there was approximately $12.3 million of total unrecognized stock-based compensation expense under the Company’s stock option plans that will be recognized over a weighted-average period of approximately 2.79 years. Future stock option grants will add to this total whereas quarterly amortization and the vesting of the existing stock option grants will reduce this total. In addition, as of March 31, 2013, there was approximately $0.2 million of total unrecognized stock-based compensation expense under the Company’s ESPP that will be recognized over a weighted-average period of approximately 4 months.

The Company uses the Black-Scholes option pricing model to estimate the fair value of the options granted and rights to acquire stock granted under the ESPP. The weighted average estimated fair values of stock option grants and rights granted under the ESPP, as well as the weighted average assumptions used in calculating these values during the three and six month periods ended March 31, 2013 and 2012 were based on estimates at the date of grant as follows:

	Three Months Ended March 31,						Six Months Ended March 31,
	2013			2012			2013			2012
Options
Weighted-average fair value of grants	$	4.27		$	4.79		$	4.31		$	4.49
Expected term in years	4.45			4.37			4.45			4.37
Estimated volatility	58		%	60		%	59		%	60		%
Risk-free interest rate	0.61		%	0.61		%	0.53		%	0.68		%
Dividend yield	—		%	—		%	—		%	—		%
ESPP
Weighted-average fair value of grants	$	2.30		$	2.98		$	2.30		$	2.98
Expected term in years	0.49			0.50			0.49			0.50
Estimated volatility	32		%	52		%	32		%	52		%
Risk-free interest rate	0.11		%	0.07		%	0.11		%	0.07		%
Dividend yield	—		%	—		%	—		%	—		%

The Company issues RSUs from time to time. The estimated fair value of RSU awards is calculated based on the market price of the Company’s common stock on the date of grant. The weighted average grant date fair value of RSUs granted in the six month periods ended March 31, 2013 and March 31, 2012, was $9.14 per share and $9.36 per share, respectively.

During the six months ended March 31, 2013, employees purchased a total of 105,000 shares for $0.8 million under the Company's ESPP. During the six months ended March 31, 2012, employees purchased a total of 97,000 shares for $0.7 million under the Company's ESPP.

A summary of the Company’s stock option activity and related information for the six months ended March 31, 2013 follows (number of shares and aggregate intrinsic value are presented in thousands):

	Number of Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term in Years	Aggregate Intrinsic Value
Outstanding at September 30, 2012	5,477		$	6.81
Granted	1,000		$	9.14
Exercised	(275	)	$	4.79		$	1,175
Cancelled/Expired	(40	)	$	9.56
Outstanding at March 31, 2013	6,162		$	7.26	4.43	$	13,359
Exercisable at March 31, 2013	3,389		$	5.82	3.28	$	11,854
Vested and expected to vest after March 31, 2013	5,977		$	7.19	4.38	$	13,318

A summary of the Company’s RSU activity and related information for the six months ended March 31, 2013 under the 2007 Plan follows (number of shares and aggregate intrinsic value are presented in thousands):

	Number of Shares		Weighted-Average Grant Date Fair Value		Aggregate Intrinsic Value
Outstanding at September 30, 2012	323		$	8.41
Granted	121		$	9.14
Vested	(168	)	$	7.90	$	1,572
Forfeited	—		$	—
Outstanding at March 31, 2013	276		$	9.05	$	2,528