ACCOUNTING FOR STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2011

ACCOUNTING FOR STOCK-BASED COMPENSATION [Abstract]

ACCOUNTING FOR STOCK-BASED COMPENSATION [Text Block]

13.    ACCOUNTING FOR STOCK-BASED COMPENSATION

Stock Incentive Plans

Under its stock incentive plans, the Company may grant stock awards or options to purchase the Company's common stock to employees, officers, directors (subject to certain restrictions) and consultants. Options generally allow the purchase of common stock at the market price on the date of grant. The options become exercisable over various periods, typically four years for employees and one year for non-employee directors, and have a maximum term of seven years. Restricted stock and restricted stock unit awards typically vest over four years. Shares available for issuance under the Company's Amended and Restated 2005 Stock Incentive Plan totaled 3,030,273 at June 30, 2011, including 373,627 shares that may alternatively be issued as awards of restricted stock or restricted stock units.

The Company records stock-based compensation cost for stock-based awards over the requisite service periods for the individual awards, which generally equal the vesting periods. Stock-compensation expense is recognized using the straight-line attribution method. The Company uses the Black-Scholes option pricing model to estimate the fair value of stock option grants with time-based vesting. The Black-Scholes model relies on a number of key assumptions to calculate estimated fair values. The fair values of restricted stock awards with time-based vesting, including restricted stock and restricted stock units, are based on the intrinsic values of the awards at the date of grant.

The Company also issues stock option grants or restricted stock unit awards with vesting based on market conditions, specifically the Company's stock price, or a combination of performance and market conditions, generally the Company's return on equity. The compensation costs and derived service periods for such grants are estimated using the Monte Carlo valuation method. For stock option grants with vesting based on a combination of performance and market conditions, the compensation costs are also estimated using the Black-Scholes valuation method factored for the estimated probability of achieving the performance goals, and compensation costs for these grants are recorded based on the higher estimate for each vesting tranche. For restricted stock unit grants with vesting based on a combination of performance and market conditions, the compensation costs are also estimated based on the intrinsic values of the awards at the date of grant factored for the estimated probability of achieving the performance goals, and compensation costs for these grants are also recorded based on the higher estimate for each vesting tranche. For each stock option grant and restricted stock award with vesting based on a combination of performance and market conditions where vesting will occur if either condition is met, the related compensation costs are recognized over the shorter of the derived service period or implicit service period.

During the first quarter of 2010, the Company modified the vesting terms of certain outstanding stock options that had vesting based on market conditions. The modifications, which affected 16 employees, provide that the vesting of the underlying shares can also occur based on the achievement of certain additional performance-based criteria and resulted in a total incremental compensation charge of $0.9 million, which is being recognized over the remaining derived service period of the stock options. The incremental compensation costs for the option modifications were based on the excess fair values of the modified options immediately after the modification, which were estimated using the Black-Scholes valuation method factored for the estimated probability of achieving the performance goals, compared to the fair values immediately before the modification estimated using the Monte Carlo valuation method.

The following table sets forth the weighted-average key assumptions and fair value results for stock options granted during the six-month periods ended June 30, 2011 and 2010:

	Six Months Ended June 30,
	2011	2010
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	2.21%	1.92%
Expected volatility	40.5%	46.1%
Expected life (in years)	4.49	4.50
Weighted-average fair value of options granted	$7.89	$5.56

The following table summarizes changes in the Company's stock options outstanding during the six months ended June 30, 2011:

	Stock Options
	Shares		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2010	5,241,898		$19.76
Granted	990,900		$21.24
Exercised	(148,191	)	$13.10
Forfeited or expired	(318,709	)	$21.19
Options outstanding at June 30, 2011 (a)	5,765,898		$20.11	5.07 years	$13,839
Options vested at June 30, 2011 or expected to vest	5,061,427		$20.25	5.05 years	$12,223
Options exercisable at June 30, 2011	1,786,251		$22.91	4.52 years	$4,325

(a)   Options outstanding at June 30, 2011 included 1,760,155 options that had vesting based on either market conditions or a combination of performance and market conditions.

The aggregate intrinsic values of stock options exercised during the six-month periods ended June 30, 2011 and 2010 were approximately $1.1 million and $0.1 million, respectively. Cash amounts received from the exercise of stock options were $1.9 million and $0.3 million for the six-month periods ended June 30, 2011 and 2010, respectively. The Company did not realize any actual tax benefit from the tax deductions for stock option exercises during the six-month periods ended June 30, 2011 and 2010 due to the full valuation allowance on the Company's U.S. deferred tax assets.

The following table sets forth the weighted-average key assumptions used for Monte Carlo valuations of restricted stock units with vesting based on market conditions or a combination of performance and market conditions granted during the six-month periods ended June 30, 2011 and 2010:

	Six Months Ended June 30,
	2011	2010
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	4.11%	4.16%
Expected volatility	41.4%	46.8%
Expected life (in years)	3.00	4.49

The following table summarizes changes in the Company's non-vested restricted stock units during the six months ended June 30, 2011:

	Non-Vested Restricted Stock Units
	Shares		Weighted- Average Grant-Date Fair Value	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Non-vested at December 31, 2010	573,264		$18.15
Granted (a)	532,000		$21.71
Vested	(174,630	)	$26.53
Forfeited	(12,282	)	$21.13
Non-vested at June 30, 2011 (b)	918,352		$19.41	2.35 years	$17,293
Expected to vest	723,493		$19.61	2.19 years	$13,623

(a)   Restricted stock units granted during the six months ended June 30, 2011 included 245,000 units that had vesting based on either market conditions or a combination of performance and market conditions.

(b)   Non-vested restricted stock units at June 30, 2011 included 488,300 units that had vesting based on either market conditions or a combination of performance and market conditions.

The weighted-average fair value of restricted stock units granted during the six-month period ended June 30, 2010 was $13.92.

The following table summarizes changes in the Company's non-vested restricted stock during the six months ended June 30, 2011:

	Non-Vested Restricted Stock
	Shares		Weighted- Average Grant-Date Fair Value	Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value (in thousands)
Non-vested at December 31, 2010	25,000		$25.41
Granted	-		-
Vested	(12,500	)	$25.41
Forfeited	-		-
Non-vested at June 30, 2011	12,500		$25.41	0.47 years	$235

Employee Stock Purchase Plan

The Company's Second Amended and Restated 1996 Employee Stock Purchase Plan (the "ESPP") offers the Company's shares for purchase at a price equal to 85% of the closing price on the applicable offering period termination date. Shares issued under the ESPP are considered compensatory under FASB ASC Subtopic 718-50, Compensation-Stock Compensation: Employee Stock Purchase Plans. Accordingly, the Company is required to assign fair value to, and record compensation expense for, share purchase rights granted under the ESPP.

The following table sets forth the weighted-average key assumptions and fair value results for share purchase rights granted under the ESPP during the six-month periods ended June 30, 2011 and 2010:

	Six Months Ended June 30,
	2011	2010
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.23%	1.15%
Expected volatility	40.9%	44.9%
Expected life (in years)	0.24	0.24
Weighted-average fair value per right granted	$2.83	$2.24

Under the ESPP, the Company issued 40,915 shares at an average price per share of $14.96 and 52,367 shares at an average price per share of $11.50 during the six months ended June 30, 2011 and 2010, respectively. A total of 695,811 shares remained available for issuance under the ESPP at June 30, 2011.

Stock-Based Compensation

The Company estimates forfeiture rates at the time awards are made based on historical turnover rates and applies these rates in the calculation of estimated compensation cost. At June 30, 2011, the Company's annualized estimated forfeiture rates were 0% for non-employee director awards, and 10% for both executive management staff and other employee awards.

Stock-based compensation was included in the following captions in the Company's condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2011 and 2010 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Cost of product revenues	$	110	$	197	$	249	$	386
Cost of services revenues		277		282		545		535
Research and development expenses		427		547		899		1,198
Marketing and selling expenses		1,356		1,107		2,574		2,075
General and administrative expenses		2,355		1,531		3,995		2,792
Total stock-based compensation	$	4,525	$	3,664	$	8,262	$	6,986

Stock-based compensation expense increased for both the three- and six-month periods ended June 30, 2011, compared to the same periods in 2010, as a result of the timing of the Company's 2011 grant cycle and incremental expense related to the reversal of the forfeiture rate applied to certain grant tranches. At June 30, 2011, the Company had $31.1 million of unrecognized compensation costs before forfeitures related to non-vested stock-based compensation awards granted under its stock-based compensation plans.