Note 14 - Share-Based Compensation:

We account for share-based compensation as required by FASB ASC 718-10 Compensation – Stock Compensation, which requires companies to recognize compensation expense in the amount equal to the fair value of all share-based payments granted to employees. Under FASB ASC 718-10, we recognize share-based compensation ratably over the service period applicable to the award. FASB ASC 718-10 also requires that excess tax benefits be reflected as financing cash flows.

We grant share-based awards under our various plans, which provide for the granting of non-qualified stock options, restricted stock and restricted stock units to members of our Board of Directors and to our employees. Stock options, restricted stock and restricted stock units generally vest ratably over four years or sooner and stock options have a maximum term of ten years.

As of December 31, 2011, there were approximately 4.8 million shares of common stock available for future stock option grants. We issue new shares of common stock when stock option awards are exercised. Stock option awards outstanding under our current plans were granted at exercise prices that were equal to the market value of our common stock on the date of grant. At December 31, 2011, approximately 0.5 million shares remain available under such plans for restricted stock and restricted stock unit grants.

During 2010, we accelerated the vesting of 86 thousand stock options and 19 thousand non-vested restricted shares in connection with the termination of our former chief financial officer. The effect of this termination resulted in additional compensation expense of approximately $800 thousand. We also accelerated the vesting of approximately 4 thousand restricted stock units for a member of our Board of Directors who retired in 2010. We also cash settled approximately 23 thousand restricted stock units for the retired Board member. The effect of the cash settlement resulted in additional compensation expense of approximately $300 thousand.

Stock Options

We use the Black-Scholes stock option pricing model to estimate the fair value of stock option awards with the following weighted average assumptions:


	Year Ended
	December 31,			December 31,			December 31,
	2011			2010			2009
Risk-free interest rate		2.2	%		3.0	%		1.9	%
Expected life (in years)		5.2			6.3			6.3
Expected volatility		44.6	%		45.1	%		43.9	%
Dividend		0	%		0	%		0	%

The Black-Scholes stock option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. We have three distinct populations of optionees; the Executive Officers Group, the Outside Directors Group, and the All Others Group. The expected life of options represents the period of time that the options are expected to be outstanding (that is, the period of time from the service inception date to the date of expected exercise or other expected settlement) and is based generally on historical trends. Through 2010, we had used the "simplified method" for "plain vanilla" options described in FASB ASC 718-10-S99 Compensation – Stock Compensation – SEC Materials. The "simplified method" calculation is the average of the vesting term plus the original contractual term divided by two. In 2011, we modified our expected life weighted average assumption based on an actuarial study derived from historical exercise data. The risk-free rate is based on the yield on the Federal Reserve treasury rate with a maturity date corresponding to the expected term of the option granted. The expected volatility assumption is based on the historical volatility of our common stock over a term equal to the expected term of the option granted. FASB ASC 718-10 also requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. It is assumed that no dividends will be paid during the entire term of the options. All option valuation models require input of highly subjective assumptions. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, the actual value realized at the time the options are exercised may differ from the estimated values computed above.

The following is a summary of the weighted average per share fair value of options granted for the years ended December 31, 2011, 2010 and 2009.


	Year Ended
	December 31,		December 31,		December 31,
	2011		2010		2009
Weighted average per share fair value of options granted	$	15.34	$	13.30	$	5.91

Set forth below is the impact on our results of operations of recording share-based compensation from stock options for the years ended December 31, 2011, 2010, and 2009 ($ amounts in thousands):


	Year Ended
	December 31,			December 31,			December 31,
	2011			2010			2009
Cost of goods sold	$	432		$	522		$	482
Selling, general and administrative		3,889			5,323			4,338
Total, pre-tax	$	4,321		$	5,845		$	4,820
Tax effect of share-based compensation		(1,599	)		(2,221	)		(1,832	)
Total, net of tax	$	2,722		$	3,624		$	2,988

The following is a summary of our stock option activity (shares and aggregate intrinsic value in thousands):


	Shares			Weighted Average Exercise Price		Weighted Average Remaining Life		Aggregate Intrinsic Value
Balance at December 31, 2010		3,132		$	26.23
Granted		228			36.27
Exercised		(668	)		15.49
Forfeited		(406	)		27.83
Balance at December 31, 2011		2,286		$	30.11		5.5	$	11,649
Exercisable at December 31, 2011		1,398		$	34.75		4.1	$	8,635
Vested and expected to vest at December 31, 2011		2,264		$	30.15		5.5	$	18,095

Total fair value of shares vested ($ amounts in thousands):


	Year Ended
	December 31,		December 31,		December 31,
	2011		2010		2009
Total fair value of shares vested	$	4,186	$	5,965	$	3,617

As of December 31, 2011, the total compensation cost related to all non-vested stock options granted to employees but not yet recognized was approximately $6.1 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining weighted average vesting period of 2.3 years.

Restricted Stock/Restricted Stock Units

Outstanding restricted stock and restricted stock units generally vest ratably over four years. The related share-based compensation expense is recorded over the requisite service period, which is the vesting period. The fair value of restricted stock is based on the market value of our common stock on the date of grant.

The impact on our results of operations of recording share-based compensation from restricted stock for the years ended December 31, 2011, 2010 and 2009 was as follows ($ amounts in thousands):


	Year Ended
	December 31,			December 31,			December 31,
	2011			2010			2009
Cost of goods sold	$	551		$	666		$	695
Selling, general and administrative		4,958			6,694			6,259
Total, pre-tax	$	5,509		$	7,360		$	6,954
Tax effect of stock-based compensation		(2,038	)		(2,797	)		(2,643	)
Total, net of tax	$	3,471		$	4,563		$	4,311

The following is a summary of our restricted stock activity (shares and aggregate intrinsic value in thousands):


	Shares			Weighted Average Grant Price		Aggregate Intrinsic Value
Non-vested balance at December 31, 2010		496		$	19.52
Granted		73			36.27
Vested		(255	)		19.21
Forfeited		(33	)		18.43
Non-vested balance at December 31, 2011		281		$	24.28	$	9,187

The following is a summary of our restricted stock unit activity (shares and aggregate intrinsic value in thousands):


	Shares			Weighted Average Grant Price		Aggregate Intrinsic Value
Non-vested restricted stock unit balance at December 31, 2010		23		$	27.68
Granted		75			36.08
Vested		(29	)		28.45
Forfeited		-			-
Non-vested restricted stock unit balance at December 31, 2011		69		$	36.47	$	2,266
Vested awards not issued		166		$	22.31	$	5,504
Total restricted stock unit balance at December 31, 2011		235		$	26.47	$	7,770

As of December 31, 2011, the total compensation cost related to all non-vested restricted stock and restricted stock units (excluding restricted stock grants with market conditions described below) granted to employees but not yet recognized was approximately $5.4 million, net of estimated forfeitures; this cost will be amortized on a straight-line basis over the remaining weighted average vesting period of approximately 2.3 years.

Restricted Stock Unit Grants With Internal Performance Conditions

In January 2012, we issued restricted stock units with performance conditions ("performance units") to our Chief Operating Officer and our President. The vesting of these performance units is contingent upon the achievement of certain financial and operational goals related to the Anchen Acquisition and corporate entity performance with cliff vesting after three years if the performance conditions and continued employment condition are met. The Compensation Committee of the Board of Directors can make a discretionary adjustment to the performance unit awards in a range from 0% to 20% of additional shares at the end of the three year vesting period, as long as we have cumulative net income in 2012, 2013 and 2014.

Our Chief Operating Officer and our President each received approximately 25 thousand performance units in January 2012 and could be awarded up to an additional 5 thousand shares each at the discretion of the Compensation Committee of the Board of Directors based on the achievement of the specified financial and operational goals. The value of the performance units awarded was approximately $1.7 million at the grant date. The recognition of expense related to these performance units will be assessed each quarter based on the projected achievement of the financial and operational goals. The value of any shares awarded at the discretion of the Compensation Committee of the Board of Directors will be recognized after the three year vesting based on the market price of any discretionary shares awarded.

Restricted Stock Grants With Market Vesting Conditions

In 2008, we issued restricted stock grants with market vesting conditions. The vesting of restricted stock grants issued to certain of our employees was contingent upon multiple market conditions that were factored into the fair value of the restricted stock at grant date with cliff vesting after three years if the market conditions had been met. Vesting was contingent upon applicable continued employment condition and the Total Stockholder Return ("TSR") on our common stock relative to the Company's stock price at the beginning of the three-year vesting period as compared to the TSR of a defined peer group of approximately 12 companies, and the TSR of the Standard and Poor's 400 Mid Cap Index ("S&P 400") over the three-year measurement period. The measurement period ended on December 31, 2010. The Company achieved the maximum level of performance under the program because the Company's TSR was greater than the 75^th percentile TSR of the peer group and the Company's TSR was greater than the median of the S&P 400 during the three-year measurement period. Approximately 454 thousand shares of common stock were earned as of the vesting date, January 11, 2011. Approximately 65 thousand shares were issued in 2008 by operation of the provisions of employment contracts for three senior executives whose employment with us was terminated. Approximately 339 thousand shares of common stock were distributed in January 2011. Approximately 115 thousand shares were cash settled upon the discretion of the Compensation Committee of the Board of Directors for approximately $4.1 million (pre-tax) in January 2011. In all circumstances, restricted stock granted did not entitle the holder the right, or obligate the Company, to settle the restricted stock in cash.

At the grant date, the effect of the market conditions on the restricted stock issued to certain employees was reflected in their fair value. The restricted stock grants with market conditions were valued using a Monte Carlo simulation. The Monte Carlo simulation estimated the fair value based on the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility for the Company, our peer group, and the S&P 400. The expected term was estimated based on the vesting period of the awards (3 years), the risk-free interest rate was based on the yield on the Federal Reserve treasury rate with a maturity matching the vesting period (2.6%). The expected dividends were assumed to be zero. Volatility was based on historical volatility over the expected term (40%). Restricted stock that included multiple market conditions had a grant date fair value per restricted share of $24.78.

The following table summarizes the components of our stock-based compensation related to our restricted stock grants with market conditions recognized in our financial statements for the years ended December 31, 2011, 2010 and 2009 ($ amounts in thousands):


	Year Ended
	December 31,		December 31,			December 31,
	2011		2010			2009
Cost of goods sold	$	-	$	174		$	196
Selling, general and administrative		-		1,566			1,766
Total, pre-tax	$	-	$	1,740		$	1,962
Tax effect of stock-based compensation		-		(661	)		(746	)
Total, net of tax	$	-	$	1,079		$	1,216

The following is a summary of our restricted stock grants with market condition vesting (shares and aggregate intrinsic value in thousands):


	Shares			Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value
Non-vested balance at December 31, 2010		242		$	24.78
Granted		97			36.54
Vested		(339	)		25.95
Forfeited		-			-
Non-vested balance at December 31, 2011	$	-		$	-	$	-

Cash-settled Restricted Stock Unit Awards

We grant cash-settled restricted stock unit awards that vest ratably over four years to certain employees. The cash-settled restricted stock unit awards are classified as liability awards and are reported within accrued expenses and other current liabilities and other long-term liabilities on the consolidated balance sheet. Cash settled restricted stock units entitle such employees to receive a cash amount determined by the fair value of our common stock on the vesting date. The fair values of these awards are remeasured at each reporting period (marked to market) until the awards vest and are paid. Fair value fluctuations are recognized as cumulative adjustments to share-based compensation expense and the related liabilities. Cash-settled restricted stock unit awards are subject to forfeiture if employment terminates prior to vesting. Share-based compensation expense for cash-settled restricted stock unit awards are recognized ratably over the service period. Cash-settled restricted stock unit awards do not decrease shares available for future share-based compensation grants.

The impact on our results of operations of recording share-based compensation from cash-settled restricted stock units for the years ended December 31, 2011 was as follows ($ amounts in thousands):


	Year Ended
	December 31,			December 31,			December 31,
	2011			2010			2009
Cost of goods sold	$	132		$	49		$	-
Selling, general and administrative		1,188			443			-
Total, pre-tax	$	1,320		$	492		$	-
Tax effect of stock-based compensation		(488	)		(187	)		-
Total, net of tax	$	832		$	305		$	-

Information regarding activity for cash-settled restricted stock units outstanding is as follows (number of awards in thousands):


	Number of Awards			Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Awards outstanding at December 31, 2010		72		$	28.13
Granted		112			35.21
Vested		(18	)		28.13
Forfeited		(17	)		32.17
Awards outstanding at December 31, 2011		149		$	32.97	$	4,881

The total grant-date fair value of cash-settled restricted stock unit awards granted in 2011 was approximately $4.0 million. As of December 31, 2011, the aggregate intrinsic value of the outstanding cash-settled restricted stock unit awards was approximately $4.9 million. As of December 31, 2011, unrecognized compensation costs related to non-vested cash-settled restricted stock units was approximately $3.5 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over the remaining vesting period of approximately 2.8 years.

Employee Stock Purchase Program:

We maintain an Employee Stock Purchase Program (the "Program"). The Program is designed to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended. It enables eligible employees to purchase shares of our common stock at a 5% discount to the fair market value. An aggregate of 1.0 million shares of common stock has been reserved for sale to employees under the Program. At December 31, 2011, approximately 700 thousand shares remain available under the Program.

(amounts in thousands)


	Year Ended
	December 31,		December 31,		December 31,
	2011		2010		2009
Shares purchased by employees		12		13		15

Chief Executive Officer Specific Share-based Compensation

On November 2, 2010, we entered into a new employment agreement with Patrick LePore, in his capacity as President and Chief Executive Officer, effective as of January 1, 2011. His new employment agreement is for a three-year term, ending December 31, 2013, subject to certain early termination events. Pursuant to the employment agreement, Mr. LePore is eligible to receive an incentive compensation award based on the compound annual growth rate ("CAGR") of our common stock over the course of Mr. LePore's three-year employment term (January 1, 2011 to December 31, 2013). Mr. LePore will be eligible to receive an incentive compensation award ranging from $2 million (for a three-year CAGR of 4%) to $9 million (for a three-year CAGR of 20% or more). He will not be eligible to receive an incentive compensation award if the Company's three-year CAGR is below 4%, and no incentive compensation award will be payable if the employment agreement is terminated prior to its expiration unless a change of control (as defined in the agreement) has occurred. These CAGR based awards will be classified as liability awards and are reported within accrued expenses and other current liabilities and other long-term liabilities on the consolidated balance sheet. The fair values of these awards are remeasured at each reporting period (mark-to -market) using a Monte Carlo valuation model until the awards vest and are paid. Fair value fluctuations are recognized as cumulative adjustments to share-based compensation expense and the related liabilities. Share-based compensation expense for these CAGR awards will be recognized ratably over the three-year service period. Our CAGR was below 4% from January 1, 2011. Through December 31, 2011, we recognized $362 thousand of expense associated with this plan.

In January 2011, Mr. LePore was granted an equity award consisting of restricted stock units with a total grant date economic value of approximately $1.85 million. The units will vest on the earlier of (a) the expiration of Mr. LePore's employment term on December 31, 2013, (b) the date that a change of control (as defined in the agreement) occurs, or (c) the date of an eligible earlier termination of Mr. LePore's employment term in accordance with the provisions of the agreement. The related share-based compensation expense is being recorded over the three-year term of the new employment agreement, which is the vesting period. The fair value of restricted stock units was based on the market value of our common stock on the date of grant.