Stock-Based Compensation

6 Months Ended

Jun. 30, 2013

Stock-Based Compensation

Stock-Based Compensation

Note 6. Stock-Based Compensation

The Company recognized employee stock-based compensation expense of $4.1 million and $8.5 million for the three and six months ended June 30, 2013, respectively, and $3.7 million and $7.4 million for the three and six months ended June 30, 2012, 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 57,750 shares and 375,250 shares of common stock to employees during the three and six months ended June 30, 2013, respectively and 62,000 shares and 566,500 shares of common stock to employees during the three and six months ended June 30, 2012, respectively. For the three and six months ended June 30, 2013, the Company issued 311,794 and 507,318 shares of common stock in connection with the exercise of stock options with a weighted-average exercise price of $17.04 and $16.70 per share, respectively. For the three and six months ended June 30, 2012, the Company issued 308,049 and 532,288 shares of common stock in connection with the exercise of stock options with a weighted-average exercise price of $15.07 and $15.72 per share, respectively.

Restricted Stock Units

During the three and six months ended June 30, 2013, the Company awarded 15,760 and 268,523 RSUs with a grant-date fair value equal to $441,000 and $7.7 million, respectively. During the three and six months ended June 30, 2012, the Company awarded 34,040 and 384,016 RSUs with a grant-date fair value equal to $1.1 million and $11.2 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 six months ended June 30, 2013, the Company issued 9,508 and 211,463 shares of common stock in connection with the vesting of RSUs with a weighted-average grant date fair value of $32.05 and $26.69 per share, respectively. During the three and six months ended June 30, 2012, the Company issued 2,576 and 62,090 shares of common stock, respectively, in connection with the vesting of RSUs with a weighted-average grant date fair value of $27.78 and $23.32 per share, respectively.

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 six months ended June 30, 2013, the Company issued 2,142 and 3,977 shares of restricted stock to outside directors, with a grant date fair value of $60,000 and $110,000, respectively, and a weighted-average grant date fair value of $27.99 and $27.64 per share, respectively. During the three and six months ended June 30, 2012, the Company issued 1,304 and 2,876 shares of restricted stock to outside directors, with a grant date fair value of $40,000 and $80,000, respectively, and a weighted-average grant date fair value of $30.61 and $27.76 per share, respectively.

Employee Stock Purchase Plan

During the three and six months ended June 30, 2013, 86,683 shares were issued under the ESPP. A total of 1,250,000 shares of common stock have been reserved for issuance under the ESPP, of which 1,017,254 shares were available for issuance as of June 30, 2013. As of June 30, 2013, there was $428,000 of unrecognized compensation expense related to the ESPP, which is expected to be recognized over an estimated weighted-average period of five 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 unsettled 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						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Expected volatility:
Stock options	45		%	46		%	46		%	46		%
ESPP	44		%	44		%	47		%	46		%
Risk-free interest rate:
Stock options	1.46		%	1.05		%	1.29		%	1.23		%
ESPP	0.12		%	0.07		%	0.13		%	0.06		%
Expected life in years:
Stock options	6.66			6.83			6.65			6.83
ESPP	0.50			0.50			0.50			0.50
Weighted-average fair value:
Stock options	$	16.71		$	16.25		$	13.73		$	14.17
ESPP	$	7.68		$	7.48		$	7.59		$	7.32