Share Based Awards

We have a stock incentive plan for employees and directors and an employee stock purchase plan. Shares to be issued under these plans will be issued either from authorized but unissued shares or from treasury shares.

We incur stock compensation expense for stock options, restricted stock units ("RSU"), performance restricted stock units ("PRSU") and stock purchased under our employee stock purchase plan ("ESPP"). We receive a tax benefit on stock compensation expense, excluding the direct tax benefits from exercise of stock options, which is reported separately on the consolidated statements of cash flows. We also have indirect tax benefits upon exercise of stock options related to research and development tax credits which were recorded as a reduction of income tax expense. The table below summarizes compensation costs and related tax benefits for the years ended December 31, 2013, 2012 and 2011.



	Year ended December 31,
	2013	2012	2011
Stock compensation expense	5,434	5,563	4,016
Tax benefit from stock-based compensation cost	2,052	1,922	1,376
Indirect tax benefit	866	209	785

As of December 31, 2013, we had $6.6 million of unamortized stock compensation cost which we will recognize as an expense over approximately 1.1 years.

Stock Incentive and Stock Option Plans

Our 2011 Stock Incentive Plan ("2011 Plan") replaced our 2003 Stock Option Plan (“2003 Plan”). Our 2011 Plan initially had 650,000 shares available for issuance, plus the remaining available shares for grant from the 2003 Plan. In 2012, our stockholders approved an amendment to the 2011 plan that increased the shares available for issuance by 750,000, bringing the initial shares available for issuance to 1,400,000, plus the remaining 248,700 shares that remained available for grant from the 2003 Plan. In addition, any forfeited, terminated or expired shares that would otherwise return to the 2003 Plan are available under the 2011 Plan. As of December 31, 2013, the 2011 Plan has 1,654,239 shares of common stock reserved for issuance to employees, which includes 254,239 shares that transferred from the 2003 Plan. Shares issued as options or stock appreciation rights ("SARs") are charged against the 2011 Plan's share reserve as one share for one share issued. Shares subject to awards other than options and SARs are charged against the 2011 Plan's share reserve as 2.09 shares for 1 share issued. Options may be granted with exercise prices at no less than fair market value at date of grant. Options granted under the 2011 Plan may be “non-statutory stock options” which expire no more than ten years from date of grant or “incentive stock options” as defined in Section 422 of the Internal Revenue Code of 1986, as amended. Upon exercise of non-statutory stock options, we are generally entitled to a tax deduction on the exercise of the option for an amount equal to the excess over the exercise price of the fair market value of the shares at the date of exercise; we are generally not entitled to any tax deduction on the exercise of an incentive stock option. The 2011 Plan includes conditions whereby unvested options are cancelled if employment is terminated.

Our 2001 Directors’ Stock Option Plan (the “Directors’ Plan”), initially had 750,000 shares reserved for issuance to members of our Board of Directors, expired in November 2011. Although no new grants may be made under the Director's Plan, grants made under the Director's Plan prior to its expiration continue to remain outstanding. Options not vested terminate if the directorship is terminated.

Stock Options

To date, all options granted under the 2011 Plan, 2003 Plan and Directors' Plan have been non-statutory stock options. The majority of the outstanding employee option grants vest 25% after one year from the grant date and the balance vests ratably on a monthly basis over 36 months. The majority of the outstanding options granted to non-employee directors vest one year from the grant date. The options generally expire 10 years from the grant date.

The fair value of option grants is calculated using the Black-Scholes option valuation model. The expected term for the option grants was based on historical experience, expected future employee behavior and the Staff Accounting Bulletin #107 simplified method. We estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock, based on the average expected exercise term. The table below summarizes the total stock options granted, total valuation and the weighted average assumptions for the years ended December 31, 2013, 2012 and 2011.



	Year ended December 31,
	2013			2012			2011
Number of options granted	244,440			228,328			290,000
Grant date fair value of options granted (in thousands)	$	3,934		$	3,158		$	4,090
Weighted average assumptions for stock option valuation:
Expected term (years)	4.6			4.7			5.0
Expected stock price volatility	29.2		%	33.6		%	34.5		%
Risk-free interest rate	0.8		%	0.7		%	1.7		%
Expected dividend yield	—		%	—		%	—		%
Weighted average grant price per option	$	62.12		$	47.12		$	43.27
Weighted average grant date fair value per option	$	16.09		$	13.83		$	14.10

A summary of our stock option activity as of and for the year ended December 31, 2013 is as follows:



	Shares		Weighted Average Exercise Price Per Share		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2012	2,444,753		$	35.66
Granted	244,440		$	62.12
Exercised	(715,779	)	$	34.48
Forfeited or expired	(21,290	)	$	48.75
Outstanding at December 31, 2013	1,952,124		$	39.26	5.1	$	47,783
Exercisable at December 31, 2013	1,392,417		$	35.18	4.0	$	39,726
Vested and expected to vest, December 31, 2013	1,952,124		$	39.26	5.1	$	47,783

The intrinsic value for options exercisable, outstanding and vested or expected to vest at December 31, 2013 is based on our closing stock price of $63.71 at December 31, 2013 and are before applicable taxes.



	Year ended December 31,
	2013		2012		2011
Intrinsic value of options exercised	$	21,847	$	12,211	$	11,451
Cash received from exercise of stock options	$	18,004	$	14,844	$	7,974
Tax benefit from stock option exercises	$	6,966	$	4,567	$	4,288

Stock Awards

In 2012, we began awarding PRSUs to our executive officers and RSUs to our Board of Directors. PRSUs are awarded to our executive officers to receive shares of common stock if the measurement period goal is met. The executive PRSUs are based on a one-year market condition performance period measured against a total shareholder return metric ("TSR"). If the TSR is less than the 33rd percentile of our peer group index, 0% of the award would be earned. If the TSR is equal or greater than the 33rd percentile and less than the 50th percentile of our peer group companies, 50% of the award would be earned. If the TSR is equal or greater than the 50th percentile and less than the 75th percentile of our peer group companies, 100% of the award will be earned. If the TSR is equal or greater than the 75th percentile of our peer group companies, 200% of the award will be earned. The PRSUs vest in equal yearly installments with one-third of the grant becoming vested on each of the three anniversary dates of the award. The RSUs granted to our Board of Directors vest on the first anniversary of the grant date. Our executive officers earned 0% of their 2013 award because the TSR was below the 33rd percentile of our peer companies. Our executive officers earned 200% of their 2012 award because the TSR was above the 75th percentile of our peer companies.

The fair value of the PRSUs is calculated using a Monte Carlo simulation embedded in a lattice model. The 2013 calculation used a risk-free interest rate of 0.15%, a closing share price of $61.76, assumed no dividends and assumed no forfeitures. For the 2013 calculation, the correlation matrix of stock price returns and volatilities were calculated based on one year preceding January 1, 2012. The 2012 calculation used a risk-free interest rate of 0.13%, a closing share price of $46.53, assumed no dividends and assumed no forfeitures. For the 2012 calculation, the correlation matrix of stock price returns and volatilities were calculated based on one year preceding January 1, 2012.

In 2013, our executive officers earned 0% of the PRSUs granted, bringing their 2013 award to zero. In 2012, our executive officers earned 200% of the PRSUs granted, bringing the total PRSUs granted to 31,178 units.

The table below summarizes our restricted stock award activity for the years ended December 31, 2013, 2012 and 2011.



	Year ended December 31,
	2013		2012		2011
PRSU
Shares granted	15,085		15,589		—
Grant date fair value per share	$	50.82	$	43.60	$	—
Grant date fair value	$	767	$	680	$	—
Intrinsic value vested	$	636

RSU
Shares granted	4,908		6,132		—
Grant date fair value per share	$	67.25	$	53.81	$	—
Grant date fair value	$	330	$	330	$	—
Intrinsic value vested	$	412

The table below provides a summary of our PRSU and RSU activity as of and for the year ended December 31, 2013. The number of units granted in 2012 are adjusted to reflect the PRSUs awards at 200% of their original amounts.



	Number of Units		Grant Date Fair Value Per Share		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value
Non-vested at December 31, 2012	37,310		$	45.28
Granted	19,993		$	54.85
Vested	(16,526	)	$	47.39
Forfeited	(15,085	)	$	50.82
Non-vested and expected to vest at December 31, 2013	25,692		$	48.12	0.5	$	1,637

ESPP

We have an ESPP under which U.S. employees may purchase up to $25,000 annually of common stock at 85% of its fair market value at the beginning or the end of a six-month offering period, whichever is lower. There are 750,000 shares of common stock reserved for issuance under the ESPP, which is subject to an annual increase of the least of 300,000 shares, two percent of the shares outstanding or such a number as determined by the Board. To date, there have been no increases. As of December 31, 2013, there were 269,905 shares available for future issuance. The ESPP is intended to constitute an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. As of December 31, 2013, we had less than $0.1 million of unamortized stock compensation expense from the ESPP which will be recognized in the first quarter of 2014.

The fair value of rights to purchase shares under the ESPP is calculated using the Black-Scholes option valuation model. The table below summarizes the number and intrinsic value of ESPP share purchases and the weighted average valuation assumptions for the 2013, 2012 and 2011 purchase periods.



	Year ended December 31,
	2013			2012			2011
ESPP shares purchased by employees	50,944			61,004			57,643
Intrinsic value of ESPP purchases (in thousands)	$	840		$	913		$	530
Weighted average assumptions for ESPP valuation:
Expected term (in years)	0.5			0.5			0.5
Expected stock price volatility	24.4		%	23.6		%	26.0		%
Risk-free interest rate	0.1		%	0.1		%	0.4		%
Expected dividend yield	—		%	—		%	—		%