13. Stock-Based Compensation Plans

Employee Stock Purchase Plan

Under the Company’s 1999 Employee Stock Purchase Plan (the “ESPP”), a total of 1,500,000 shares of the Company’s common stock have been reserved for issuance to eligible employees. Participating employees are permitted to designate up to the lesser of $25,000, or 10% of their annual base compensation, for the purchase of common stock under the ESPP. Purchases under the ESPP are made one calendar month after the end of each fiscal quarter. The price for shares of common stock purchased under the ESPP is 85% of the stock’s fair market value on the last business day of the three-month participation period. Shares issued under the ESPP during the years ended December 31, 2011, 2010 and 2009, totaled 40,669, 57,734, and 77,011, respectively.

Additionally, the discount offered pursuant to the Company’s ESPP discussed above is 15%, which exceeds the 5% non-compensatory guideline in ASC 718 and exceeds the Company’s estimated cost of raising capital. Consequently, the entire 15% discount to employees is deemed to be compensatory for purposes of calculating expense using a fair value method. Compensation cost related to the ESPP for each of the years ended December 31, 2011, 2010 and 2009 was approximately $0.2 million.

On July 24, 2007, the Company’s stockholders approved a proposal to amend the ESPP to extend the term of the ESPP by ten years to April 30, 2018. The term of the amended ESPP commenced May 1, 2008 and continues until April 30, 2018 subject to earlier termination by the Company’s board of directors.

Stock Incentive Plans – Active Plans

The Company has a 2005 Equity and Performance Incentive Plan, as amended (the “2005 Incentive Plan”), under which shares of the Company’s common stock have been reserved for issuance to eligible employees or non-employee directors of the Company. The 2005 Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, performance awards and other awards. The maximum number of shares of the Company’s common stock that may be issued or transferred in connection with awards granted under the 2005 Incentive Plan is the sum of (i) 5,000,000 shares and (ii) any shares represented by outstanding options that had been granted under designated terminated stock option plans that are subsequently forfeited, expire or are canceled without delivery of the Company’s common stock.

On July 24, 2007, the stockholders of the Company approved the First Amendment to the 2005 Incentive Plan which increased the number of shares authorized for issuance under the plan from 3,000,000 to 5,000,000 and contained certain other amendments, including an amendment to provide that the exercise price for any options granted under the 2005 Incentive Plan, as amended, may not be less than the market value per share of common stock on the date of grant.

Stock options granted pursuant to the 2005 Incentive Plan are granted at an exercise price not less than the market value per share of the Company’s common stock on the date of the grant. Prior to the adoption of the First Amendment to the 2005 Incentive Plan, stock options granted under the 2005 Incentive Plan were granted with an exercise price not less than the market value per share of common stock on the date immediately preceding the date of grant. Under the 2005 Incentive Plan, the term of the outstanding options may not exceed ten years. Vesting of options is determined by the Compensation Committee of the Board of Directors, the administrator of the 2005 Incentive Plan, and can vary based upon the individual award agreements.

Performance awards granted pursuant to the 2005 Incentive Plan become payable upon the achievement of specified management objectives. Each performance award specifies: (i) the number of performance shares or units granted, (ii) the period of time established to achieve the management objectives, which may not be less than one year from the grant date, (iii) the management objectives and a minimum acceptable level of achievement as well as a formula for determining the number of performance shares or units earned if performance is at or above the minimum level but short of full achievement of the management objectives, and (iv) any other terms deemed appropriate.

Restricted stock awards granted pursuant to the 2005 Incentive Plan have requisite service periods of three and four years and vest in increments of 33% and 25%, respectively, on the anniversary of the grant date. Under each arrangement, stock is issued without direct cost to the employee.

Upon adoption of the 2005 Incentive Plan in March 2005, the Board terminated the following stock option plans of the Company: (i) the 2002 Non-Employee Director Stock Option Plan, as amended, (ii) the MDL Amended and Restated Employee Share Option Plan, as amended (iii) the 2000 Non-Employee Director Stock Option Plan, as amended (iv) the 1997 Management Stock Option Plan, as amended (v) the 1996 Stock Option Plan, as amended; and (vi) the 1994 Stock Option Plan, as amended. Termination of these stock option plans did not affect any options outstanding under these plans immediately prior to termination thereof.

Exchange Program

On August 1, 2001, the Company announced a voluntary stock option exchange program (the “Exchange Program”) offering to exchange all outstanding options to purchase shares of the Company’s common stock granted under the 1994 Stock Option Plan, 1996 Stock Option Plan and 1999 Stock Option Plan held by eligible employees or eligible directors for new options under the same option plans by August 29, 2001. The Exchange Program required any person tendering an option grant for exchange to also tender all subsequent option grants with a lower exercise price received by that person during the six months immediately prior to the date the options accepted for exchange are cancelled. Options to acquire a total of 3,089,100 shares of common stock with exercise prices ranging from $2.50 to $45.00 were eligible to be exchanged under the Exchange Program. The offer expired on August 28, 2001, and the Company cancelled 1,946,550 shares tendered by 578 employees. As a result of the Exchange Program, the Company granted replacement stock options to acquire 1,823,000 shares of common stock at an exercise price of $10.04. The difference between the number of shares cancelled and the number of shares granted relates to options cancelled by employees who terminated their employment with the Company between the cancellation date and regrant date. With the exception of three employee grants, the exercise price of the replacement options was the fair market value of the common stock on the grant date of the new options, which was March 4, 2002 (a date at least six months and one day after the date of cancellation). Under ASC 718, non-cash, stock based compensation expense was recognized for any option for which the exercise price was below the market price on the applicable measurement date. This expense was amortized over the service periods of the options. For three employees, the cancellation of their awards were within the six months and one day waiting period and were, therefore, treated as variable awards when they were reissued on March 4, 2002. Under the variable method, charges are taken each reporting period to reflect increases in the fair value of the stock over the option exercise price until the stock option is exercised or otherwise cancelled. The new shares had a service period of 18 months beginning on the grant date of the new options, except for options tendered by executive officers under the 1994 Stock Option Plan, which vested 25% annually on each anniversary of the grant date of the new options. The Exchange Program was designed to comply with ASC 718 for fixed plan accounting.

Stock Incentive Plans – Terminated Plans with Options Outstanding

The Company had a 2002 Non-Employee Director Stock Option Plan that was terminated in March 2005 whereby 250,000 shares of the Company’s common stock had been reserved for issuance to eligible non-employee directors of the Company. The term of the outstanding options is ten years. All outstanding options under this plan are fully vested.

The Company had a 1999 Stock Option Plan, as amended, that expired in February 2009 whereby 4,000,000 shares of the Company’s common stock had been reserved for issuance to eligible employees of the Company and its subsidiaries. The term of the outstanding options is 10 years. The options generally vest annually over a period of three or four years. All outstanding options under this plan are fully vested.

The Company had a 1996 Stock Option Plan that was terminated in March 2005 whereby 1,008,000 shares of the Company’s common stock had been reserved for issuance to eligible employees of the Company and its subsidiaries and non-employee members of the board of directors. The term of the outstanding options is ten years. The options generally vest annually over a period of four years.

The Company had a 1994 Stock Option Plan that was terminated in March 2005 whereby 1,910,976 shares of the Company’s common stock had been reserved for issuance to eligible employees of the Company and its subsidiaries. The term of the outstanding options is ten years. The stock options vest ratably over a period of four years.

A summary of stock options issued under the various Stock Incentive Plans previously described and changes is as follows:

		September 30,			September 30,		September 30,		September 30,
	Number of Shares			Weighted- Average Exercise Price ($)		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value of In-the-Money Options ($)
Outstanding, December 31, 2008		3,428,297		$	21.69
Granted		505,183			16.17
Exercised		(150,134	)		12.06
Forfeited		(125,606	)		31.98
Expired		(100,867	)		29.82

Outstanding, December 31, 2009		3,556,873			20.72
Granted		338,950			24.48
Exercised		(235,986	)		13.34
Forfeited		(106,625	)		18.11
Expired		(42,674	)		30.31

Outstanding, December 31, 2010		3,510,538			21.55
Granted		367,202			28.95
Exercised		(361,093	)		12.40
Forfeited		(26,591	)		20.53

Outstanding, December 31, 2011		3,490,056		$	23.28		5.37	$	21,943,485

Exercisable, December 31, 2011		2,289,018		$	22.88		4.62	$	16,297,256

At December 31, 2011, we expect that 94.4% of options granted will vest over the vesting period.

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2011, 2010, and 2009 was $14.00, $12.22, and $8.59, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2011, 2010, and 2009 was $6.7 million, $1.9 million, and $0.8 million, respectively.

The fair value of options granted in the respective fiscal years was estimated on the date of grant using the Black-Scholes option-pricing model, a pricing model acceptable under ASC 718, with the following weighted-average assumptions:

		September 30,			September 30,			September 30,
	Years Ended December 31,
	2011			2010			2009
Expected life (years)		5.9			5.9			6.0
Risk-free interest rate		1.4	%		2.3	%		3.0	%
Expected volatility		50.6	%		50.8	%		53.2	%
Expected dividend yield		—			—			—

Expected volatilities are based on the Company’s historical common stock volatility derived from historical stock price data for historic periods commensurate with the options’ expected life. The expected life of options granted represents the period of time that options granted are expected to be outstanding. The Company used the simplified method for determining the expected life as permitted under ASC 718. The simplified method was used as the historical data did not provide a reasonable basis upon which to estimate the expected term. This is due to the extended period during which individuals were unable to exercise options while the Company was not current with its filings with the SEC. The risk-free interest rate is based on the implied yield currently available on United States Treasury zero coupon issues with a term equal to the expected life at the date of grant of the options. The expected dividend yield is zero as the Company has historically paid no dividends and does not anticipate dividends to be paid in the future.

During the year ended September 30, 2007, pursuant to the Company’s 2005 Incentive Plan, the Company granted long-term incentive program performance share awards (“LTIP Performance Shares”). These LTIP Performance Shares would have been earned based upon the achievement, over a three-year performance period, of performance goals related to (i) the compound annual growth over the performance period in the Company’s 60-month backlog as determined and defined by the Company, (ii) the compound annual growth over the performance period in the diluted earnings per share as reported in the Company’s consolidated financial statements, and (iii) the compound annual growth over the performance period in the total revenues as reported in the Company’s consolidated financial statements. In no event would any of the LTIP Performance Shares become earned if the Company’s earnings per share was below a predetermined minimum threshold level at the conclusion of the performance period. Assuming achievement of the predetermined minimum earnings per share threshold level, up to 150% of the LTIP Performance Shares could have been earned upon achievement of performance goals equal to or exceeding the maximum target levels for compound annual growth over the performance period in the Company’s 60-month backlog, diluted earnings per share and total revenues. Management evaluated, on a quarterly basis, the probability that the target performance goals would be achieved, if at all, and the anticipated level of attainment in order to determine the amount of compensation costs to record in the consolidated financial statements.

Through September 30, 2008, the Company had accrued compensation costs assuming an attainment level of 100% for the awards granted during the year ended September 30, 2007. During the three months ended December 31, 2008, the Company changed the expected attainment to 0% based upon revised forecasted diluted earnings per share, which the Company did not expect to achieve the predetermined earnings per share minimum threshold level required for the LTIP Performance Shares granted in 2007 to be earned. As the performance goals were considered improbable of achievement, the Company reversed compensation costs related to the awards granted in fiscal 2007 during the three months ended December 31, 2008. These awards expired on December 31, 2009 without vesting.

During the years ended December 31, 2011, 2010 and 2009, pursuant to the Company’s 2005 Incentive Plan, the Company granted LTIP Performance Shares. These LTIP Performance Shares are earned, if at all, based upon the achievement, over a specified period that must not be less than one year and is typically a three-year performance period, of performance goals related to (i) the compound annual growth over the performance period in the sales for the Company as determined by the Company, and (ii) the cumulative operating income over the performance period as determined by the Company. In no event will any of the LTIP Performance Shares become earned if the Company’s sales growth or cumulative operating income is below a predetermined minimum threshold level at the conclusion of the performance period. Assuming achievement of the predetermined sales growth and cumulative operating income threshold levels, up to 200% of the LTIP Performance Shares may be earned upon achievement of performance goals equal to or exceeding the maximum target levels for the performance goals over the performance period. Management must evaluate, on a quarterly basis, the probability that the threshold performance goals will be achieved, if at all, and the anticipated level of attainment in order to determine the amount of compensation costs to record in the consolidated financial statements.

During the fourth quarter of the year ended December 31, 2011, the Company revised the expected attainment for the awards granted in fiscal 2009 from 150% to 200% and the revised the awards granted in fiscal 2010 from 100% to 175% due to changes in forecasted sales and operating income. This change resulted in additional compensation expense of approximately $2.2 million. The expected attainment level for the awards granted in fiscal 2011 is 100%.

A summary of the nonvested LTIP Performance Shares is as follows:

		September 30,			September 30,
	Number of			Weighted-
	Shares at			Average
	Expected			Grant Date
Nonvested LTIP Performance Shares	Attainment			Fair Value
Nonvested at December 31, 2008		—		$	—
Granted		216,150			16.52

Nonvested at December 31, 2009		216,150			16.52
Granted		207,180			26.29
Forfeited or expired		(25,620	)		16.52
Change in expected attainment for 2009 grants		101,325			16.52

Nonvested at December 31, 2010		499,035			20.57
Granted		237,751			28.94
Forfeited or expired		(36,682	)		18.92
Change in expected attainment for 2009 and 2010 grants		231,468			22.71

Nonvested at December 31, 2011		931,571		$	23.33

During the years ended December 31, 2011, 2010 and 2009, pursuant to the Company’s 2005 Incentive Plan, the Company granted restricted share awards (“RSAs”). The awards granted during the year ended December 31, 2011 and 2010 have requisite service periods of three years and vest in increments of 33% on the anniversary of the grant dates. The awards granted during the year ended December 31, 2009, have a requisite service period of four years and vest in increments of 25% on the anniversary of the grant dates. Under each arrangement, stock is issued without direct cost to the employee. The Company estimates the fair value of the RSAs based upon the market price of the Company’s stock at the date of grant. The RSA grants provide for the payment of dividends on the Company’s common stock, if any, to the participant during the requisite service period (vesting period) and the participant has voting rights for each share of common stock. The Company recognizes compensation expense for RSAs on a straight-line basis over the requisite service period.

A summary of nonvested RSAs are as follows:

		September 30,			September 30,
	Restricted			Grant Date
Nonvested Restricted Share Awards	Share Awards			Fair Value
Nonvested at December 31, 2008		462,400		$	17.97
Granted		23,500			16.65
Vested		(115,602	)		17.97
Forfeited or expired		(55,750	)		17.54

Nonvested at December 31, 2009		314,548			17.94
Granted		25,950			22.19
Vested		(95,014	)		17.81
Forfeited or expired		(53,186	)		18.52

Nonvested at December 31, 2010		192,298			18.42
Granted		6,300			28.95
Vested		(86,325	)		18.31
Forfeited or expired		(12,250	)		17.52

Nonvested at December 31, 2011		100,023		$	19.29

During the years ended December 31, 2011, 2010 and 2009, the Company had 86,325, 95,014 and 115,602 RSA shares vest, respectively. The Company withheld 25,495, 30,304, and 38,167 of those respective shares to pay the employees’ portion of the minimum payroll withholding taxes.

As of December 31, 2011, there were unrecognized compensation costs of $7.5 million related to nonvested stock options that the Company expects to recognize over a weighted-average period of 2.2 years. As of December 31, 2011, there were unrecognized compensation costs of $1.0 million related to nonvested RSAs that the Company expects to recognize over a weighted-average period of 1.4 years. As of December 31, 2011, there were unrecognized compensation costs of $13.3 million related to nonvested LTIPs that the Company expects to recognize over a weighted-average period of 2.3 years.

The Company recorded stock-based compensation expenses recognized under ASC 718 during the years ended December 31, 2011, 2010, and 2009 related to stock options, LTIP Performance Shares, RSAs, and the ESPP of $11.3 million, $7.8 million, and $7.6 million, respectively, with corresponding tax benefits of $4.1 million, $2.9 million, and $3.0 million, respectively. Tax benefits in excess of the option’s grant date fair value are classified as financing cash flows. Estimated forfeiture rates, stratified by employee classification, have been included as part of the Company’s calculations of compensation costs. The Company recognizes compensation costs for stock option awards which vest with the passage of time with only service conditions on a straight-line basis over the requisite service period.

Cash received from option exercises for the year ended December 31, 2011, 2010, and 2009 was $4.5 million, $3.1 million, and $1.8 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $2.5 million, $0.7 million, and $0.3 million for the year ended December 31, 2011, 2010, and 2009, respectively.