Stock-based Compensation

9 Months Ended

Jun. 30, 2012

Stock-based Compensation [Abstract]

Stock-based Compensation

10. Stock-based Compensation

The Company has stock-based compensation plans under which it grants stock options, restricted stock awards and performance share awards. Accounting guidance requires all share-based payments to be recognized as an operating expense, based on their fair values, over the requisite service period. The Company’s stock-based compensation expenses were allocated to the following expense categories (in thousands):

	Three months ended June 30,				Nine months ended June 30,
	2012		2011		2012		2011
Product costs	$	5	$	18	$	31	$	59
Research and development		71		271		453		865
Selling, general and administrative		580		589		1,705		1,867
Total	$	656	$	878	$	2,189	$	2,791

As of June 30, 2012, approximately $4.1 million of total unrecognized compensation costs related to non-vested awards is expected to be recognized over a weighted average period of approximately 2.1 years. The unrecognized compensation costs above include $0.9 million associated with performance share awards that are currently anticipated to be fully expensed because the performance conditions for certain award periods are expected to be met. The unrecognized compensation costs above exclude $0.1 million associated with performance share awards that are currently anticipated to not be fully expensed because the performance conditions for certain award periods are not expected to be met.

Stock Option Plans

The Company uses the Black-Scholes option pricing model to determine the weighted average grant date fair value of stock options granted. The weighted average per share fair value of stock options granted during the three months ended June 30, 2012 was $5.94. There were no stock options granted in the three months ended June 30, 2011. The weighted average per share fair values of stock options granted during the nine months ended June 30, 2012 and 2011 were $5.24 and $3.96, respectively. The assumptions used as inputs in the model were as follows:

	Three months ended June 30,					Nine months ended June 30,
	2012			2011		2012			2011
Risk-free interest rates		0.7	%		N/A		0.8	%		1.5	%
Expected life (years)		4.8			N/A		4.8			4.8
Expected volatility		48.6	%		N/A		49.6	%		45.0	%
Dividend yield		0	%		N/A		0	%		0	%

The risk-free interest rate assumption was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award. The expected life of options granted is determined based on the Company’s experience. Expected volatility is based on the Company’s stock price movement over a period approximating the expected term. Based on management’s judgment, dividend rates are expected to be zero for the expected life of the options. The Company also estimates forfeitures of options granted, which are based on historical experience.

Non-qualified stock options are granted at fair market value on the date of grant. Non-qualified stock options expire in seven to ten years or upon termination of employment or service as a Board member. Non-qualified stock options granted prior to May 2008 generally become exercisable with respect to 20% of the shares on each of the first five anniversaries following the grant date, and non-qualified stock options granted subsequent to April 2008 generally become exercisable with respect to 25% of the shares on each of the first four anniversaries following the grant date.

The total pre-tax intrinsic value of options exercised during the nine months ended June 30, 2012 was $49,000. The intrinsic value represents the difference between the exercise price and the fair market value of the Company’s common stock on the last day of the respective fiscal period end. No stock options were exercised during each of the three months ended June 30, 2012 and 2011 and the nine months ended June 30, 2011.

Restricted Stock Awards

The Company has entered into restricted stock agreements with certain key employees, covering the issuance of common stock (“Restricted Stock”). Under accounting guidance these shares are considered to be non-vested shares. The Restricted Stock will be released to the key employees if they are employed by the Company at the end of the vesting period. The stock-based compensation table above includes Restricted Stock expenses of less than $0.1 million and $0.2 million during the three and nine months ended June 30, 2012, respectively, and $0.1 million and $0.5 million for the three and nine months ended June 30, 2011, respectively.

Performance Share Awards

The Company has entered into performance share agreements with certain key employees, covering the issuance of common stock (“Performance Shares”). The Performance Shares vest upon the achievement of all or a portion of certain performance objectives, which must be achieved during the performance period. Compensation is recognized in each period based on management’s best estimate of the achievement level of the grants’ specified performance objectives and the resulting vesting amounts. The Company recognized expenses of approximately $0.4 million and $0.7 million related to Performance Shares for the three and nine months ended June 30, 2012, respectively. For the three and nine months ended June 30, 2011, the Company recognized expenses of approximately $0.1 million and $0.2 million, respectively. The stock-based compensation table above includes the Performance Shares expenses.

1999 Employee Stock Purchase Plan

Under the 1999 Employee Stock Purchase Plan (“Stock Purchase Plan”), the Company is authorized to issue up to 400,000 shares of common stock. All full-time and part-time employees can choose to have up to 10% of their annual compensation withheld, with a limit of $25,000, to purchase the Company’s common stock at purchase prices defined within the provisions of the Stock Purchase Plan. As of June 30, 2012 and 2011, there were less than $0.1 million of employee contributions for each period, included in accrued liabilities in the condensed consolidated balance sheets. Stock compensation expense recognized related to the Stock Purchase Plan for the three months ended June 30, 2012 and 2011 totaled less than $0.1 million for each period. Stock compensation expense for the nine months ended June 30, 2012 and 2011 totaled approximately $0.1 million for each period. The stock-based compensation table above includes the Stock Purchase Plan expenses.