Stock-Based Compensation

12 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

11. STOCK-BASED COMPENSATION

Stock-based awards are granted under the terms of the 2000 Omnibus Stock Plan as amended and restated as of December 4, 2009 (the Omnibus Plan), as well as our Stock Option Plan as amended and restated as of November 27, 2006 (the Stock Option Plan) and Non-Officer Stock Option Plan as amended and restated as of November 27, 2006 (the Non-Officer Plan), both of which expired during the first quarter of fiscal 2007 (the Plans). Additional awards cannot be made under the Stock Option Plan or the Non-Officer Plan. The authority to grant options under the Omnibus Plan and set other terms and conditions rests with the Compensation Committee of the Board of Directors.

The Stock Option Plan and the Non-Officer Plan include non-statutory stock options (NSOs) and the Stock Option Plan also includes incentive stock options (ISOs) to employees and others who provide services to us, including consultants, advisers and directors. Options granted under these plans generally vest over a four year service period and will expire if unexercised after ten years from the date of grant. Share awards vest upon continued employment. The exercise price for ISOs and non-employee director options granted under the Stock Option Plan was set at the fair market value of our common stock based on the closing price on the date of grant. The exercise price for NSOs granted under the Stock Option Plan or the Non-Officer Plan was set by the Compensation Committee of the Board of Directors and was set to the exercise price based on the closing price on the date of grant.

The Omnibus Plan authorizes the issuance of up to 5,750,000 common shares in connection with awards of stock options, stock appreciation rights, restricted stock, performance units or stock awards. Eligible participants include our employees, non-employee directors, consultants and advisors. Awards may be granted under the Omnibus Plan until December 4, 2019 as an authorization to issue an additional 2,500,000 common shares was ratified on January 25, 2010 at the Annual Meeting of Stockholders. Options under the Omnibus Plan can be granted as either ISOs or NSOs. The exercise price shall be determined by our Compensation Committee but shall not be less than the fair market value of our common stock based on the closing price on the date of grant.

We recorded cash received from the exercise of stock options of $2.9 million, $1.7 million and $0.4 million during fiscal years 2011, 2010 and 2009, respectively. The excess tax benefits from stock-based compensation were $0.8 million during fiscal 2011 and immaterial during fiscal years 2010 and 2009. Upon exercise, we issue new shares of stock. The Plans have provisions allowing employees to elect to pay their withholding obligation through share reduction. No employees elected to pay income tax withholding obligations through share reduction during fiscal years 2011, 2010 or 2009.

Also, we sponsor an Employee Stock Purchase Plan as amended and restated as of December 4, 2009 and November 27, 2006 (the Purchase Plan), covering all domestic employees with at least 90 days of continuous service and who are customarily employed at least 20 hours per week. The Purchase Plan allows eligible participants the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each three-month offering period. The Purchase Plan was ratified on January 25, 2010 at the Annual Meeting of Stockholders to increase the number of shares reserved for future purchases to the Purchase Plan by 250,000 shares bringing the total number of shares to 2,000,000 shares of our Common Stock that may be purchased under the plan. Employee contributions to the Purchase Plan were $1.0 million in the fiscal year ending 2011, $0.9 million in fiscal 2010 and $1.0 million in the fiscal year ended 2009. Pursuant to the Purchase Plan, 112,285, 124,087, and 145,316 common shares were issued to employees during the fiscal years ended 2011, 2010 and 2009, respectively. Shares are issued under the Purchase Plan from treasury stock. As of September 30, 2011, 315,157 common shares were available for future issuances under the Purchase Plan.

Stock-based compensation expense is included in the consolidated results of operations as follows (in thousands):

	Year ended September 30,
	2011			2010			2009
Cost of sales	$	136		$	149		$	152
Sales and marketing		1,156			1,185			1,269
Research and development		771			739			833
General and administrative		1,381			1,298			1,264
Stock-based compensation before income taxes		3,444			3,371			3,518
Income tax benefit		(1,143	)		(1,121	)		(1,141	)
Stock-based compensation after income taxes	$	2,301		$	2,250		$	2,377

Stock-based compensation cost capitalized as part of inventory was immaterial as of September 30, 2011, 2010 and 2009.

A summary of options and common shares reserved for grant under the Plans and Assumed Plans are as follows (in thousands, except per common share amounts):

									Weighted
	Options						Weighted		Average		Aggregate
	Available			Options			Average		Contractual Term		Intrinsic
	for Grant			Outstanding			Exercise Price		(in years)		Value (1)
Balance at September 30, 2010		3,537			4,628		$	10.34
Granted		(1,196	)		1,196			10.21
Exercised		—			(434	)		6.57
Cancelled		176			(207	)		8.59
Balance at September 30, 2011		2,517			5,183		$	10.70		6.4	$	6,854
Exercisable at September 30, 2011					3,367		$	11.28		5.2	$	3,923

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our closing stock price of $11.00 as of September 30, 2011, which would have been received by the option holders had all option holders exercised their options as of that date.

The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price. The total intrinsic value of all options exercised during each of the twelve months ended September 30, 2011, 2010 and 2009 was $2.4 million, $0.6 million and $0.2 million, respectively.

The table below shows the weighted average fair value, which was determined based upon the fair value of each option on the grant date utilizing the Black-Scholes option-pricing model and the related assumptions:

	2011			2010			2009
Fair value of options granted (in thousands)	$	4,948		$	3,445		$	2,667
Weighted average per option grant date fair value	$	4.14		$	3.39		$	3.27
Assumptions used for option grants:
Risk free interest rate		1.58% – 2.14	%		1.86% – 2.4	%		1.57% – 2.41	%
Expected term	5.25 years			4.5 – 5 years			4.5 – 5 years
Expected volatility		41% – 44	%		43% – 45	%		41% – 45	%
Weighted average volatility		43	%		44	%		42	%
Expected dividend yield		0			0			0

The fair value of each option award granted during the periods presented was estimated using the Black-Scholes option valuation model that uses the assumptions noted in the table above. Expected volatilities are based on the historical volatility of our stock. We use historical data to estimate option exercise and employee termination information within the valuation model; separate groups of grantees that have similar historical exercise behaviors are considered separately for valuation purposes. The expected term of options granted is derived from the vesting period and historical information and represents the period of time that options granted are expected to be outstanding. The risk-free rate used is the zero-coupon U.S. Treasury bond rate in effect at the time of the grant whose maturity equals the expected term of the option.

A summary of our non-vested options as of September 30, 2011 and changes during the twelve months then ended is presented below (in thousands, except per common share amounts):

				Weighted Average
				Grant Date
	Number of			Fair Value per
	Options			Common Share
Nonvested at September 30, 2010		1,421		$	3.42
Granted		1,196		$	4.14
Vested		(761	)	$	4.90
Forfeited		(41	)	$	3.84
Nonvested at September 30, 2011		1,815		$	3.27

We use historical data to estimate pre-vesting forfeiture rates. The pre-vesting forfeiture rate used in fiscal 2011 was 2.0%. As of September 30, 2011 the total unrecognized compensation cost related to non-vested stock-based compensation arrangements, net of expected forfeitures, was $5.8 million and the related weighted average period over which it is expected to be recognized is approximately 2.8 years.

At September 30, 2011, the weighted average exercise price and remaining life of the stock options are as follows (in thousands, except remaining life and exercise price):

Options Outstanding							Options Exercisable
			Weighted
			Average
			Remaining		Weighted		Number of		Weighted
Range of	Options		Contractual Life		Average		Shares		Average
Exercise Prices	Outstanding		( In Years)		Exercise Price		Vested		Exercise Price
$2.19 – $8.00		276		3.76	$	6.03		273	$	6.02
$8.01 – $9.00		1,317		7.67	$	8.22		744	$	8.26
$9.01 – $10.00		1,278		8.00	$	9.69		311	$	9.76
$10.01 – $11.00		465		4.98	$	10.67		349	$	10.61
$11.01 – $13.00		584		5.24	$	12.47		517	$	12.52
$13.01 – $15.00		740		4.91	$	13.96		668	$	13.87
$15.01 – $16.88		523		5.67	$	15.29		505	$	15.29
$2.19 – $16.88		5,183		6.43	$	10.70		3,367	$	11.28

The total fair value of shares vested was $3.7 million in fiscal 2011, $2.9 million in fiscal 2010 and $3.2 million in fiscal 2009.