NOTE 6—STOCK BASED COMPENSATION

Stock Plans:

We have adopted six stock option plans:

(i)

the 2011 Incentive Compensation Plan, which expires May 2021;

(ii)

the 2008 Incentive Stock Plan, which our stockholders approved in May 2008;

(iii)

the 2005 Incentive Stock Plan, which our stockholders approved in April 2005;

(iv)

the 2000 Nonstatutory Stock Option Plan, which expired in February 2010;

(v)

the 1997 Stock Option Plan, which expired in January 2007;

(vi)

the 1996 Directors Stock Option Plan, which expired in May 2006.

The 2011 Incentive Compensation Plan authorizes awards of stock options, stock appreciation rights, restricted stock, and restricted stock units for a total of 3,000,000 shares; the 2008 Plan authorizes awards of stock options, stock appreciation rights, restricted stock, and restricted stock units for a total of 3,500,000 shares; the 2005 Plan authorizes awards of stock options and stock appreciation rights for a total of 4,800,000 shares; the 2000 Plan authorizes stock option grants for a total of 7,000,000 shares; the 1997 Plan authorized stock option grants for a total of 6,000,000 shares; and the Directors Plan authorized stock option grants for a total of 2,340,000 shares.

In terms of the stock options authorized, the 2011 Plan, 2008 Plan, and the 2005 Plan provide for the grant of non-statutory stock options (“NSOs”) and incentive stock options intended to qualify under section 422 of the Internal Revenue Code (“ISOs”); the 2000 Plan provides for the grant of NSOs; the 1997 Plan provided for the grant of NSOs and ISOs; and the Directors Plan provided for the grant of NSOs.

The 2011, 2008 and 2005 Plans authorize awards to our officers, employees and consultants and, following the expiration of the Directors Plan in May 2006, to our directors; the 2000 Plan authorized awards to our employees and consultants but not to our officers and directors; the 1997 Plan authorized awards to our officers, directors, employees and consultants; and the Directors Plan authorized awards to our outside directors.

As of December 31, 2011, we reserved the following shares for issuance, consisting of both shares available for awards under the 2011 Plan, 2008 Plan, 2005 Plan, 2000 Plan, and 1997 Plan and shares issuable under outstanding stock option grants and restricted stock unit awards:


1996 Directors Plan options			133,224
1997 Plan options			306,594
2000 Plan options			595,942
2005 Plan options			3,326,274
2008 Plan options			3,446,125
2011 Plan options			3,000,000

Total shares reserved			10,808,159

Employee Stock Purchase Plan:

In October 2000, our Board of Directors adopted the Employee Stock Purchase Plan (“ESPP”) effective as of July 1, 2001. Our stockholders approved the ESPP in May 2001. The ESPP authorizes 600,000 shares of our common stock to be purchased by employees at a 15% discount from the market price of the stock through payroll deductions during two six-month offerings each year. An employee who elects to participate in an offering is granted an option on the first day of the offering for a number of shares equal to the employee’s payroll deductions under the ESPP during the offering period (which may not exceed $5,000) divided by the option price per share. The option price per share is the lower of 85% of the closing price of a share of our common stock on the first trading day of the offering period or 85% of the closing price on the last trading day of the offering period. We recognize compensation expense for the ESPP, which is reflected in the statement of income. Every U.S. employee who has completed six months employment as of the first day of an offering and who is a full-time employee, or a part-time employee who customarily works at least 20 hours per week, is eligible to participate in the offering. During 2011, 2010, and 2009, 53,213 shares, 61,573 shares, and 56,145 shares respectively, were issued through the ESPP.

Stock Based Compensation Expense:

During 2011, there were no changes to our stock compensation plans or modifications to outstanding stock-based awards which would change the value of any awards outstanding. Compensation expense for all stock-based compensation awards granted subsequent to January 1, 2006 is based on the grant-date fair value determined in accordance with the provisions of FASB accounting standards for share-based payments. During the years ended December 31, 2011, 2010 and 2009, we recognized compensation expense of $14.4 million, $14.4 million and $14.0 million, respectively, for stock options, and $1.0 million, $0.9 million and $0.7 million, respectively, for the ESPP, which is reflected in the statement of income. There were no significant capitalized stock-based compensation costs at December 31, 2011, 2010 and 2009.

The following table presents the total stock-based compensation expense resulting from stock option awards and the ESPP included in the consolidated statements of income:


In thousands
	Years Ended December 31,
	2011		2010		2009
Cost of revenues—stock option plan	$	121	$	224	$	366
Selling, general and administrative—stock option plan		13,428		13,914		13,599
Selling, general and administrative—restricted stock unit		811		304		0
Selling, general and administrative—ESPP		1,007		856		673

Total	$	15,367	$	15,298	$	14,638

As of December 31, 2011, there were $24.5 million of total unrecognized compensation expenses related to non-vested option awards, which is expected to be recognized over a weighted-average period of 1.49 years.

The following table sets forth the tax benefits related to stock compensation:


In thousands
	Years Ended December 31,
	2011		2010		2009
Tax benefit recognized in income statement	$	6,091	$	7,359	$	5,329
Excess tax benefit realized		17,410		24,687		10,905

Stock Options:

Options granted to directors vest in one year and options granted to officers and employees generally vest over five years. Expense related to the graded vesting options is recognized using the straight-line method over the vesting period.

The exercise price per share of an option granted under any of our stock option plans may not be less than the closing price of a share of our common stock on the date of grant. The maximum term of an option granted under any plan may not exceed 10 years. An option may be exercised only when it is vested and, in the case of an option granted to an employee (including an officer), only while he or she remains an employee and for a limited period following the termination of his or her employment. New shares are issued upon exercise of stock options. Option activity for the years ended December 31, 2011, 2010 and 2009 is summarized as follows:


	2011					2010					2009
	Number of Options			Weighted Average Exercise Price per Share		Number of Options			Weighted Average Exercise Price per Share		Number of Options			Weighted Average Exercise Price per Share
Outstanding at beginning of year		6,508,833		$	41.86		7,387,753		$	35.43		7,297,399		$	30.97
Granted		1,050,226			85.28		1,388,846			54.13		1,368,476			47.39
Exercised		(963,218	)		32.41		(2,106,156	)		26.95		(1,107,063	)		19.61
Forfeited		(244,378	)		53.49		(156,269	)		47.07		(162,470	)		42.84
Cancelled or expired		(9,126	)		28.93		(5,341	)		55.50		(8,589	)		53.37

Outstanding at end of year		6,342,337		$	50.06		6,508,833		$	41.86		7,387,753		$	35.43

Exercisable at end of year		3,406,594		$	40.31		3,099,479		$	34.49		3,884,494		$	28.58
Available for future grant		4,396,346					2,240,937					3,939,210

The total exercise intrinsic value represents the total pre-tax intrinsic value (the difference between the sales price on that trading day in the year ended December 31, 2011 and the exercise price associated with the respective option).


In thousands
	Years Ended December 31,
	2011		2010		2009
Total exercise intrinsic value of options exercised	$	52,939	$	78,500	$	37,600

The total aggregate intrinsic value represents the total pre-tax intrinsic value (the difference between our closing stock price on the last day of trading for the year ended December 31, 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders assuming all option holders had exercised their options on December 31, 2011; this amount changes based on the fair market value of our stock.

The following tables set forth the information related to outstanding options for the years ended December 31, 2011, 2010 and 2009:

In years

2011

2010

2009

Weighted average remaining contractual life of outstanding options

6.5

6.7

6.5


In thousands
	2011		2010		2009
Total aggregate intrinsic value of outstanding options	$	184,300	$	254,200	$	146,400

The following tables set forth the information related to exercisable options:

In years

2011

2010

2009

Weighted average remaining contractual life of exercisable options

5.3

5.3


In thousands
	2011		2010		2009
Total aggregate intrinsic value of exercisable options	$	128,900	$	143,900	$	103,600

Options outstanding and exercisable as of December 31, 2011 by price range are presented below:


	Options Outstanding						Options Exercisable
Range of Exercise Price	Shares		Outstanding Average Remaining Life in Years		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$13.685-$23.535		635,002		2.48	$	21.86		635,002	$	21.86
$23.585-$32.875		715,255		4.02		29.38		699,255		29.36
$33.500-$37.825		63,513		4.83		35.38		61,573		35.31
$38.100-$38.565		658,722		5.10		38.56		490,249		38.56
$38.905-$43.330		80,086		5.35		42.75		71,016		42.82
$43.340-$46.830		860,266		7.08		46.79		331,964		46.76
$46.870-$49.760		139,811		7.29		48.72		93,911		48.93
$49.900-$51.550		1,003,191		8.07		51.52		247,739		51.51
$51.750-$53.150		663,837		6.16		53.13		385,687		53.13
$53.480-$94.240		1,522,654		8.67		77.17		390,198		65.15

		6,342,337		6.47	$	50.06		3,406,594	$	40.31

The Black-Scholes option-pricing model was used in determining the fair value of each option grant. The expected term of options granted is based on historical experience. Expected volatility is based upon historical volatility. The expected dividend yield is zero. The risk-free interest rate is based upon the U.S. Treasury yield rates for a comparable period. The assumptions that we used in the Black-Scholes model are as follows:


	Years Ended December 31,
	2011			2010			2009
Stock options granted		1,050,226			1,388,846			1,368,476
Weighted average grant date fair value	$	21.07		$	13.74		$	11.90
Expected term (in years)		5.75			5.75			5.50
Expected volatility		27.42	%		28.31	%		28.28	%
Expected dividend yield		0.00	%		0.00	%		0.00	%
Risk free interest rate		2.21	%		2.33	%		2.08	%

Restricted Stock Units:

Restricted stock units (“RSUs”) activity for the years ended December 31, 2011 and 2010 is summarized as follows below. RSUs vest at the end of three years. Our 2008 Plan includes a share reserve related to RSUs granted at a 2-1 ratio. We did not grant any RSUs in 2009.


	2011							2010
	Number of Units			Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value		Number of Units		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
	(in years)							(in years)
Outstanding at beginning of year		20,000							0
Granted		18,488							20,000
Forfeited		(3,750	)						0

Outstanding at end of year		34,738			1.63	$	2,706,784		20,000		2.12	$	1,618,400

Exercisable at end of year		0			0.00		0		0		0.00		0
Vested and expected to vest in the future		28,493			1.60	$	2,220,173		20,000		2.12	$	1,618,400

The per share fair value of RSUs for the years ended December 31, 2011 and 2010 was $85.00 and $51.65, respectively.