Stock Options and Stock-Based Compensation

3 Months Ended

Jun. 30, 2012

Stock Options and Stock-Based Compensation [Abstract]

Stock Based Compensation and Stock Options

Note B — Stock Based Compensation and Stock Options

Under the Company’s Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at June 30, 2012, options for up to 9,682,500 shares of the Company’s common stock may be granted over the life of the Plan to key employees, non-employee directors and consultants at exercise prices not less than the fair market value of the stock at the date of grant. Options granted under the Plan are non-statutory stock options and generally vest 25% one year from date of grant and the remaining 75% vesting ratably each month for the next 36 months. The options granted to employees and the board of directors expire at the end of five years and ten years from date of grant, respectively.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected volatility, the expected option life, and the expected forfeiture rate. The risk-free rate is based on the interest rate paid on a U.S. Treasury issue with a term similar to the estimated life of the option. Based upon the historical experience of options cancellations, the Company has estimated an annualized forfeiture rate of 9.3% and 11.7% for the three months ended June 30, 2011 and 2012, respectively. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate. The following assumptions were used to estimate the fair value of options granted during the three months ended June 30, 2011 and 2012 using the Black-Scholes option-pricing model:

	Three Months Ended June 30,
	2011			2012
Risk-free interest rate		1.88	%		0.62	%
Expected volatility		46	%		47	%
Expected dividend yield		0.00	%		0.00	%
Expected forfeiture rate		9.30	%		11.70	%
Expected weighted average life of option in years		4.7 years			4.6 years

All options granted in the three months ended June 30, 2011 and 2012 were granted at fair market value and are non-statutory stock options.

The table below shows the amounts recognized in the financial statements for stock compensation expense for time based options and performance based options during the three months ended June 30, 2011 and 2012, respectively. Included in the three months ended June 30, 2011 stock compensation expense is $334,000 for the expense related to the performance based options.

	Three Months Ended
	June 30, 2011			June 30, 2012
Cost of revenues	$	126,000		$	113,000
General and administrative		532,000			185,000
Total cost of stock-based compensation included in income before income tax provision		658,000			298,000
Amount of income tax benefit recognized		(256,000	)		(119,000	)
Amount charged against net income	$	402,000		$	179,000
Effect on diluted net income per share	$	(0.03	)	$	(0.02	)

Summarized information for all stock options for the three months ended June 30, 2011 and 2012 follows:

	Three Months Ended June 30, 2011					Three Months Ended June 30, 2012
	Shares			Average Price		Shares			Average Price
Options outstanding, beginning		813,662		$	29.26		751,023		$	34.19
Options granted		15,675			49.56		11,150			41.08
Options exercised		(28,544	)		22.85		(65,573	)		25.45
Options cancelled		(3,416	)		29.47		(44,697	)		42.93
Options outstanding, ending		797,377		$	29.89		651,903		$	34.59

The following table summarizes the status of stock options outstanding and exercisable at June 30, 2012:

Range of Exercise Price	Number of Outstanding Options		Weighted Average Remaining Contractual Life		Outstanding Options – Weighted Average Exercise Price		Exercisable Options – Number of Exercisable Options		Exercisable Options – Weighted Average Exercise Price
$15.55 to $25.10		148,367		2.09	$	19.66		133,993	$	19.57
$25.11 to $30.97		181,964		2.93	$	28.24		120,136	$	28.19
$30.98 to $46.00		135,181		4.32	$	39.33		47,584	$	36.77
$46.01 to $52.76		186,391		3.84	$	49.23		24,084	$	46.68
Total		651,903		3.29	$	34.59		325,797	$	27.27

A summary of the status for all outstanding options at June 30, 2012, and changes during the three months then ended, is presented in the table below:

	Number of Options			Weighted Average Exercise Per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of June 30, 2012
Options outstanding at March 31, 2012		751,023			34.19
Granted		11,150			41.08
Exercised		(65,573	)		25.45
Cancelled – forfeited		(44,395	)		43.04
Cancelled – expired		(302	)		27.15
Ending outstanding		651,903			34.59		3.29		9,689,000
Ending vested and expected to vest		586,470			33.21		3.19		9,444,000
Ending exercisable at June 30, 2012		325,797			27.27		2.58		7,083,000

The weighted-average grant-date fair value of options granted during the three months ended June 30, 2011 and 2012, was $20.31 and $16.25, respectively.

Included in the above-noted stock option grants and stock compensation expense are performance based stock options under which vesting occurs only upon the Company achieving certain revenue or earnings per shares targets as determined by the Company’s board of directors. These options were valued in the same manner as the time vesting options. However, the Company only recognizes stock compensation to the extent that the targets are determined to be probable which allow the options to vest. The Company recognized $334,000 and $38,000 of stock compensation expense for the quarters ended June 30, 2011 and June 30, 2012, respectively.