Stock Based Compensation

9 Months Ended

Jun. 30, 2011

Stock Based Compensation [Abstract]

Stock Based Compensation

Note D — Stock Based Compensation

     On January 28, 2010, the Company’s shareholders approved the Rochester Medical Corporation 2010 Stock Incentive Plan. As of that same date, no new awards were allowed to be granted under the Company’s 1991 Stock Option Plan or the 2001 Stock Incentive Plan. The 2010 Stock Incentive Plan authorizes the issuance of up to 1,000,000 shares of common stock pursuant to grants of incentive stock options, non-incentive stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalents, performance awards, stock awards, and other stock-based awards. Per the terms of the 2010 Stock Incentive Plan, awards may be granted with a term no longer than ten years. The vesting schedule and other terms of the awards granted under the 2010 Stock Incentive Plan will be determined by the Compensation Committee of the Board of Directors at the time of the grant. As of June 30, 2011, there were 527,000 shares that remain available for issuance under the 2010 Stock Incentive Plan, and there were 433,000 options and 40,000 shares of restricted stock outstanding under this plan. As of June 30, 2011, the Company also had 1,203,750 options outstanding under the 2001 Stock Incentive Plan.

     The Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is generally the vesting period. The Company recorded approximately $302,000 ($231,000 net of tax) and $1,179,000 ($877,000 net of tax) of related stock-based compensation expense for the quarter and nine months ended June 30, 2011 and approximately $314,000 ($246,000 net of tax) and $1,164,000 ($879,000 net of tax) of related stock-based compensation expense for the quarter and nine months ended June 30, 2010, respectively. This stock-based compensation expense reduced both basic and diluted earnings per share by $0.02 for each of the quarters ended June 30, 2011 and 2010, and $0.07 for each of the nine months ended June 30, 2011 and 2010.

     As of June 30, 2011, there is approximately $1,959,000 of unrecognized compensation cost that is expected to be recognized over a weighted average period of approximately thirteen months.

Stock Options and Restricted Stock

     In the third quarter of fiscal 2011, the Company granted 40,000 shares of restricted stock and no stock options. In the third quarter of fiscal 2010, no stock options or restricted shares were granted. The estimated fair value of the restricted shares was determined by the market price at the date of grant and expensed over a period of four years. The Black-Scholes option pricing model was used to estimate the fair value of stock-options granted during the fiscal year with the following weighted average assumptions.

	2011
Dividend yield		0	%
Expected volatility		47	%
Risk-free interest rate		3.42	%
Expected holding period (in years)		8.74
Weighted-average grant-date fair value	$	6.29

     The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of the Company’s stock options. The expected volatility, holding period, and forfeitures of options are based on historical experience.

     The following table represents stock-based awards activity for the nine months ended June 30, 2011:

						Weighted-Average
				Weighted-Average		Remaining Contract
	Number of Shares			Exercise Price		Life
Outstanding awards at beginning of period		1,672,700		$	7.83	5.31 Yrs
Granted — options		230,000		$	9.13
Granted — restricted shares		40,000			—
Exercised		(305,950	)	$	1.78
Outstanding awards at end of period		1,636,750		$	9.18	5.92 Yrs.
Outstanding awards exercisable at end of period		1,208,625		$	8.42	4.95 Yrs.

     At June 30, 2011, the aggregate intrinsic value of options outstanding was $2,529,389, and the aggregate intrinsic value of options exercisable was $2,529,389. Total intrinsic value of options exercised was $2,534,092 for the nine months ended June 30, 2011. Shares available for future stock-based awards to employees and directors under the 2010 Stock Incentive Plan were 527,000 at June 30, 2011.