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, 2014, 2013 and 2012.



	Year ended December 31,
	2014		2013		2012
Stock compensation expense	$	9,592	$	5,434	$	5,563
Tax benefit from stock-based compensation cost	$	3,567	$	2,052	$	1,922
Indirect tax benefit	$	209	$	866	$	209

As of December 31, 2014, we had $22.0 million of unamortized stock compensation cost which we will recognize as an expense over approximately 1.5 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 and 2014, our stockholders approved amendments to the 2011 plan that increased the shares available for issuance by 1,850,000, bringing the initial shares available for issuance to 2,500,000, 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, 2014, the 2011 Plan has 2,763,243 shares of common stock reserved for issuance to employees, which includes 263,243 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.

In 2014, our Compensation Committee of the Board of Directors awarded our new Chief Executive Officer an employment inducement option to purchase 182,366 shares of our common stock and an employment inducement grant of restricted stock units with respect to 68,039 shares of our common stock. The inducement grants were made out of our 2014 Inducement Incentive Plan ("2014 Plan").

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 2014 Plan, 2011 Plan, 2003 Plan and Directors' Plan have been non-statutory stock options. The majority of the time-based 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 performance based stock option grants vest ratably at 25% per year over four years. 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 time-based option grants is calculated using the Black-Scholes option valuation model. The expected term for the option grants was based on historical experience and expected future employee behavior. 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 time-based stock options granted, total valuation and the weighted average assumptions for the years ended December 31, 2014, 2013 and 2012.



	Year ended December 31,
	2014			2013			2012
Number of time-based options granted	492,935			244,440			228,328
Grant date fair value of options granted (in thousands)	$	7,311		$	3,934		$	3,158
Weighted average assumptions for stock option valuation:
Expected term (years)	4.7			4.6			4.7
Expected stock price volatility	26.7		%	29.2		%	33.6		%
Risk-free interest rate	1.4		%	0.8		%	0.7		%
Expected dividend yield	—		%	—		%	—		%
Weighted average grant price per option	$	58.92		$	62.12		$	47.12
Weighted average grant date fair value per option	$	14.83		$	16.09		$	13.83

The 2014 performance stock option grants are exercisable if the common stock price condition is met. Fifty percent of the vested performance stock options become exercisable if the closing price of our common stock is equal to or more than 125% of the exercise price for 30 consecutive trading days during the term of the grant. The remaining 50% of the vested performance stock options become exercisable if the closing price of our common stock is equal to or more than 150% of the exercise price for 30 consecutive trading days during the term of the grant.

The fair value of performance option grants is calculated using the Monte Carlo Simulation. The expected term of the performance option grants is based on the expected number of years to achieve the exercisable goal trigger and assumes that the vested option will be immediately exercised or cancelled, if underwater. We estimate the volatility of our common stock at the date of grant based on the historical volatility of our common stock over a 10 year period. The table below summarizes the performance stock options granted, total valuation and the weighted average assumptions for the year ended December 31, 2014.




Number of performance options granted	699,625
Grant date fair value of options granted (in thousands)	$	13,344
Weighted average assumptions for stock option valuation:
Expected term (years)	4.0
Expected stock price volatility	31.7		%
Risk-free interest rate	2.9		%
Expected dividend yield	—		%
Weighted average grant price per option	$	58.90
Weighted average grant date fair value per option	$	19.07

A summary of our stock option activity as of and for the year ended December 31, 2014 is as follows:



	Shares		Weighted Average Exercise Price Per Share		Weighted Average Contractual Life (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2013	1,952,124		$	39.26
Granted	1,192,560		$	58.91
Exercised	(529,181	)	$	32.78
Forfeited or expired	(58,567	)	$	52.51
Outstanding at December 31, 2014	2,556,936		$	49.46	7.0	$	82,936
Exercisable at December 31, 2014	1,193,223		$	39.19	4.7	$	50,963
Vested and expected to vest, December 31, 2014	2,556,936		$	49.46	7.0	$	82,936

The intrinsic values for options exercisable, outstanding and vested or expected to vest at December 31, 2014 is based on our closing stock price of $81.90 at December 31, 2014 and are before applicable taxes.



	Year ended December 31,
	2014		2013		2012
Intrinsic value of options exercised	$	18,802	$	21,847	$	12,211
Cash received from exercise of stock options	$	16,998	$	18,004	$	14,844
Tax benefit from stock option exercises	$	5,700	$	6,966	$	4,567

Stock Awards

RSUs are granted to our Board of Directors and vest on the first anniversary of the grant date. In 2014, we granted RSUs to our Chief Executive Officer that vest ratably on the anniversary of the grant over three years and to certain other employees that vest ratably on the anniversary of the grant over two years. The fair value of the RSUs is based on the price of the common stock on the grant date.

In 2012 and 2013, we awarded PRSUs to our executive officers. 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. 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. 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 fair value of the PRSUs was 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, 2013. 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.

The table below summarizes our restricted stock award activity for the years ended December 31, 2014, 2013 and 2012.



	Year ended December 31,
	2014		2013		2012
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	$	659	$	636

RSU
Shares granted	76,618		4,908		6,132
Grant date fair value per share	$	58.89	$	67.25	$	53.81
Grant date fair value	$	4,512	$	330	$	330
Intrinsic value vested	$	292	$	412

The table below provides a summary of our PRSU and RSU activity as of and for the year ended December 31, 2014. The number of units granted in 2012 is 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, 2013	25,692		$	48.12
Granted	76,618		$	58.89
Vested	(15,300	)	$	51.19
Forfeited	(978	)	$	43.60
Non-vested and expected to vest at December 31, 2014	86,032		$	57.22	1.0	$	7,046

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, 2014, there were 222,439 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, 2014, we had less than $0.1 million of unamortized stock compensation expense from the ESPP which will be recognized in the first quarter of 2015.

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 2014, 2013 and 2012 purchase periods.



	Year ended December 31,
	2014			2013			2012
ESPP shares purchased by employees	47,466			50,944			61,004
Intrinsic value of ESPP purchases (in thousands)	$	476		$	840		$	913
Weighted average assumptions for ESPP valuation:
Expected term (in years)	0.5			0.5			0.5
Expected stock price volatility	20.8		%	24.4		%	23.6		%
Risk-free interest rate	1.1		%	0.1		%	0.1		%
Expected dividend yield	—		%	—		%	—		%