Stock-Based Compensation

9 Months Ended

Sep. 30, 2012

Stock-Based Compensation

Stock-Based Compensation

Note 6. Stock-Based Compensation

The Company recorded stock-based compensation expense of $3.4 million and $10.8 million for the three and nine months ended September 30, 2012, respectively, and $2.9 million and $8.8 million of stock-based compensation expense for the three and nine months ended September 30, 2011, respectively. Employee stock-based compensation expense includes expense related to stock option grants, restricted stock unit (“RSU”) awards to employees, restricted stock issued in lieu of outside director fees and stock purchased under the Company’s Employee Stock Purchase Plan (“ESPP”). Stock-based compensation expense is calculated based on options and RSUs ultimately expected to vest and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Stock Option Grants

The Company granted options to purchase 41,500 and 608,000 shares of common stock to employees and outside directors during the three and nine months ended September 30, 2012, respectively, and options to purchase 12,000 and 560,900 shares of common stock to employees and outside directors during the three and nine months ended September 30, 2011, respectively. For the three and nine months ended September 30, 2012, the Company issued 303,577 and 835,865 shares of common stock in connection with the exercise of stock options with a weighted-average exercise price of $17.96 and $16.53 per share, respectively. For the three and nine months ended September 30, 2011, the Company issued 89,273 and 514,819 shares of common stock in connection with the exercise of stock options with a weighted-average exercise price of $12.60 and $12.88 per share, respectively.

Restricted Stock Units

During the three and nine months ended September 30, 2012, the Company awarded 31,550 and 415,566 RSUs, respectively, with a grant-date fair value of $1.1 million and $12.3 million, respectively. During the three and nine months ended September 30, 2011, the Company awarded 16,920 and 328,468 RSUs to employees with a grant date fair value equal to $466,000 and $7.7 million, respectively. Each RSU entitles the recipient to receive one share of the Company’s common stock upon vesting. RSUs awarded to employees generally vest as to one-third of the total number of shares awarded annually over a three-year period.  During the three and nine months ended September 30, 2012, the Company issued 2,819 and 64,909 shares of common stock, respectively, in connection with the vesting of RSUs with a weighted-average grant date fair value of $22.80 and $23.29 per share, respectively. No shares were issued in connection with the vesting of RSUs for either of the three or nine months ended September 30, 2011.

Restricted Stock in Lieu of Directors’ Fees

Outside members of the Company’s Board of Directors may elect to receive fully-vested restricted stock in lieu of cash compensation for services as a director. During the three and nine months ended September 30, 2012, the Company issued 1,196 and 4,072 shares of restricted stock, respectively, to outside directors, with a grant date fair value of $40,000 and $120,000, respectively, and a weighted-average grant date fair value of $33.40 and $29.41 per share, respectively. During the three and nine months ended September 30, 2011, the Company issued 1,432 and 3,462 shares of restricted stock, respectively, to outside directors, with a grant date fair value of $40,000 and $93,000, respectively, and a weighted-average grant date fair value of $27.78 and $26.82 per share, respectively.

Employee Stock Purchase Plan

During the nine months ended September 30, 2012, 69,856 shares were issued under the ESPP. No shares were issued under the ESPP during the three months ended September 30, 2012 or the three and nine months ended September 30, 2011. A total of 1,250,000 shares of common stock have been reserved for issuance under the ESPP, of which 1,180,144 shares were available for issuance as of September 30, 2012. As of September 30, 2012, there was $163,000 of unrecognized compensation expense related to the ESPP, which is expected to be recognized over an estimated weighted-average period of two months.

Valuation Assumptions

The Company values its stock option grants using the Black-Scholes option valuation model. Option valuation models require the input of highly subjective assumptions that can vary over time. The Company’s assumptions regarding expected volatility are based on the historical volatility of the Company’s common stock. The expected life of options granted is estimated based on historical option exercise data and assumptions related to unexercised options. The risk-free interest rate is estimated using published rates for U.S. Treasury securities with a remaining term approximating the expected life of the options granted. The Company uses a dividend yield of zero as it has never paid cash dividends and does not anticipate paying cash dividends in the foreseeable future. The weighted-average fair values and assumptions used in calculating such values during each period are as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Expected volatility:
Stock options	45		%	46		%	46		%	47		%
ESPP	38		%	—		%	43		%	—		%
Risk-free interest rate:
Stock options	1.43		%	1.44		%	1.23		%	2.28		%
ESPP	0.12		%	—		%	0.08		%	—		%
Expected life in years:
Stock options	6.68			5.41			6.98			6.18
ESPP	0.50			—			0.50			—
Weighted-average fair value:
Stock options	$	18.40		$	11.56		$	14.51		$	11.19
ESPP	$	8.12		$	—		$	7.59		$	—