Stock-based Compensation

9 Months Ended

Sep. 30, 2012

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

Stock-based Compensation

Stock-based Compensation. Stock-based compensation expense before income tax expense for the three and nine-month periods ended September 30, 2012 and 2011, consisted of the following (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Cost of goods sold	$	49	$	69	$	190	$	158
Research and development	26		24		93		53
Selling, general, and administrative	354		343		1,171		871
Stock-based compensation expense before taxes	$	429	$	436	$	1,454	$	1,082

The excess income tax benefit created from exercises of stock options was approximately $550,000 and $716,000 for the three and nine-month periods ended September 30, 2012, respectively, as compared to $4,000 and $2.9 million for the three and nine-month periods ended September 30, 2011, respectively. As of September 30, 2012, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately $5.0 million and is expected to be recognized over a weighted average period of 3.4 years.

During the three and nine-month periods ended September 30, 2012, we granted 7,500 and 127,500 stock awards, respectively. During the three and nine-month periods ended September 30, 2011, there were 844,000 awards granted. We use the Black-Scholes methodology to value the stock-based compensation expense for options. In applying the Black-Scholes methodology to our outstanding option grants, we used the following assumptions:

	Nine Months Ended
	September 30,
	2012			2011
Risk-free interest rate	0.54%	-	0.95%	0.68%	-	1.34%
Expected option life	4.2 years	-	6.0 years	4.2 years	-	6.0 years
Expected dividend yield	—			—
Expected price volatility	42.01%	-	44.56%	42.11%	-	45.29%

For purposes of the foregoing analysis, the average risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of grant, based on the expected term of the stock option. The expected term of the stock options is determined using the historical exercise behavior of employees. The expected price volatility is determined using a weighted average of daily historical volatility of our stock price over the corresponding expected option life and implied volatility based on recent trends of the daily historical volatility. For options with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period.