NOTE 6—STOCK BASED COMPENSATION

Stock Plans:

We have adopted six stock option plans:

•

the 2011 Incentive Compensation Plan, which expires in May 2021;

•

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

•

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

•

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

•

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

•

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, 2012, 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 shares			40,784
1997 Plan shares			54,522
2000 Plan shares			232,096
2005 Plan shares			2,384,111
2008 Plan shares			3,285,547
2011 Plan shares			3,000,000

Total shares reserved			8,997,060

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 2012, 2011, and 2010, 56,362 shares, 53,213 shares, and 61,573 shares respectively, were issued through the ESPP.

Stock Based Compensation Expense:

During 2012, 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, 2012, 2011 and 2010, we recognized compensation expense of $15.2 million, $14.4 million and $14.4 million, respectively, for stock options, and $1.1 million, $1.0 million and $0.9 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, 2012, 2011 and 2010.

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,
	2012		2011		2010
Cost of revenues—stock option plan	$	136	$	121	$	224
Selling, general and administrative—stock option plan		13,630		13,428		13,914
Selling, general and administrative—restricted stock unit		1,474		811		304
Selling, general and administrative—ESPP		1,099		1,007		856

Total	$	16,339	$	15,367	$	15,298

As of December 31, 2012, there were $28.9 million of total unrecognized compensation expenses related to non-vested option awards, which is expected to be recognized over a weighted-average period of 1.63 years.

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


In thousands
	Years Ended December 31,
	2012		2011		2010
Tax benefit recognized in income statement	$	5,818	$	6,091	$	7,359
Excess tax benefit realized		30,161		17,410		24,687

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, 2012, 2011 and 2010 is summarized as follows:


	2012					2011					2010
	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		6,342,337		$	50.06		6,508,833		$	41.86		7,387,753		$	35.43
Granted		1,142,205			86.63		1,050,226			85.28		1,388,846			54.13
Exercised		(1,803,601	)		36.30		(963,218	)		32.41		(2,106,156	)		26.95
Forfeited		(136,518	)		63.12		(244,378	)		53.49		(156,269	)		47.07
Cancelled or expired		(759	)		75.29		(9,126	)		28.93		(5,341	)		55.50

Outstanding at end of year		5,543,664		$	61.69		6,342,337		$	50.06		6,508,833		$	41.86

Exercisable at end of year		2,674,411		$	50.48		3,406,594		$	40.31		3,099,479		$	34.49
Available for future grant		3,312,992					4,396,346					2,240,937

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, 2012 and the exercise price associated with the respective option).


In thousands
	Years Ended December 31,
	2012		2011		2010
Total exercise intrinsic value of options exercised	$	97,816	$	52,939	$	78,500

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, 2012 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, 2012; 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, 2012, 2011 and 2010:

In years

2012

2011

2010

Weighted average remaining contractual life of outstanding options

6.7

6.5

6.7


In thousands
	2012		2011		2010
Total aggregate intrinsic value of outstanding options	$	175,200	$	184,300	$	254,200

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

In years

2012

2011

2010

Weighted average remaining contractual life of exercisable options

5.5

5.3


In thousands
	2012		2011		2010
Total aggregate intrinsic value of exercisable options	$	114,500	$	128,900	$	143,900

Options outstanding and exercisable as of December 31, 2012 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
$17.525-$38.565		846,746		3.29	$	32.32		834,746	$	32.35
$38.905-$43.330		70,362		4.36		42.90		70,362		42.90
$43.340-$46.830		648,422		6.02		46.82		321,543		46.81
$46.870-$50.820		114,322		6.01		48.99		84,882		49.19
$50.890-$51.550		865,481		7.07		51.54		330,343		51.54
$51.750-$54.590		578,345		5.10		53.26		434,889		53.27
$54.600-$84.910		431,837		7.35		66.90		253,244		62.87
$85.000-$85.000		828,915		8.11		85.00		207,227		85.00
$85.020-$86.140		15,250		9.12		85.52		400		86.02
$86.240-$94.760		1,143,984		9.10		87.05		136,775		87.60

		5,543,664		6.71	$	61.69		2,674,411	$	50.48

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,
	2012			2011			2010
Stock options granted (shares)		1,142,205			1,050,226			1,388,846
Weighted average grant date fair value	$	20.14		$	21.07		$	13.74
Expected term (in years)		6.00			5.75			5.75
Expected volatility		27.87	%		27.42	%		28.31	%
Expected dividend yield		0.00	%		0.00	%		0.00	%
Risk free interest rate		1.05	%		2.21	%		2.33	%

Restricted Stock Units:

Restricted stock units (“RSUs”) activity for the years ended December 31, 2012, 2011 and 2010 is summarized as follows below. RSUs vest at the end of three or five years. Our 2008 and 2011 Plans include a share reserve related to RSUs granted at a 2-1 ratio.


	2012					2011					2010
	Number of Units			Weighted Average Remaining Contractual Life		Number of Units			Weighted Average Remaining Contractual Life		Number of Units		Weighted Average Remaining Contractual Life
				(in years)					(in years)				(in years)
Outstanding at beginning of year		34,738					20,000					0
Granted		39,237					18,488					20,000
Released		(4,000	)				0					0
Forfeited		(1,773	)				(3,750	)				0

Outstanding at end of year		68,202			2.58		34,738			1.63		20,000		2.12

Exercisable at end of year		0			0.00		0			0.00		0		0.00


In thousands
	2012		2011		2010
Total aggregate intrinsic value of outstanding units	$	6,362	$	2,707	$	1,618

The per share fair value of RSUs granted for the years ended December 31, 2012, 2011 and 2010 was $86.24, $85.00 and $51.65, respectively.