8. SHARE-BASED COMPENSATION/STOCK OPTION AND PURCHASE PLANS

Description of Share-Based Compensation Plans

Stock Option and Award Plans

We have three stock option plans for officers and certain other employees: the 1994 Stock Option Plan (1994 Plan); the 2003 Stock Option Plan (2003 Plan); and the 2007 Incentive Award Plan (2007 Plan). The 1994 Plan and 2003 Plan authorized the grant of incentive stock options and non-qualified stock options to employees. The 2007 Plan authorizes the grant of stock options, restricted stock awards, stock appreciation rights and other types of equity awards to employees. We no longer grant stock option grants under the 1994 Plan or 2003 Plan. A total of 1,650,360 shares have been reserved for issuance of equity awards under the 2007 Plan and may be of either Class A or Class B common stock. At December 31, 2011, there were 816,322 shares available to be granted in the future.

Under these plans, Class A and Class B options are granted at prices not less than fair market value of the underlying common stock on the date of grant. Generally, options granted have a term of 10 years and vest in increments of 20% per year over a five-year period on the yearly anniversary date of the grant. Stock awards issued under the 2007 Plan generally vest in increments of 20% per year over a five-year period on the yearly anniversary date of the grant.

Employee Stock Purchase Plans

Our Amended and Restated 1988 Employee Stock Purchase Plan (1988 ESPP) provides that eligible employees may contribute up to 10% of their compensation up to $25,000 annually toward the quarterly purchase of our Class A common stock. The employees’ purchase price is 85% of the lesser of the fair market value of the stock on the first business day or the last business day of each calendar quarter. We have authorized the sale of 2,390,000 shares of common stock under the 1988 ESPP. After December 31, 2011, we do not intend to issue shares from this plan.

In April 2011, our shareholders approved the 2011 Employee Stock Purchase Plan (2011 ESPP) and has the same terms as the 1988 ESPP in regard to employee contributions and purchase price. The 2011 ESPP provides eligible employees the opportunity to purchase shares of Company Class A common stock. The 2011 ESPP includes two components: a Code Section 423 Component that we intend to qualify as an “employee stock purchase plan” under Section 423 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and a Non-423 Component, which authorizes the grant of purchase rights that does not qualify as an “employee stock purchase plan” under Section 423 of the Code. Under the 2011 ESPP, 600,000 shares of Class A common stock are authorized for sale.

Share-Based Compensation Expense

Included in our share-based compensation expense is the cost related to stock option grants, ESPP stock purchases, restricted stock and restricted stock unit awards. Share-based compensation expense is allocated to Cost of goods sold, Research and development expense, and Selling, general and administrative expense in the Consolidated Statements of Income.

For 2011, 2010 and 2009, we recognized pre-tax share-based compensation expense of $10.7 million, $10.2 million and $9.1 million, respectively. We did not capitalize any share-based compensation expense.

For options and awards, we amortize the fair value on a straight-line basis. All stock compensation awards are amortized over the requisite service periods of the awards, which are generally the vesting periods.

Stock Options

The following table summarizes stock option activity.



	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in millions)
Outstanding, January 1, 2009	1,254,127		$	48.84
Granted	58,500		$	75.07
Exercised	(90,542	)	$	38.20
Forfeited/expired	(15,711	)	$	59.15
Outstanding, December 31, 2009	1,206,374		$	50.78
Granted	58,500		$	84.57
Exercised	(200,125	)	$	26.81
Forfeited/expired	(6,930	)	$	61.08
Outstanding, December 31, 2010	1,057,819		$	57.12
Granted	58,500		$	99.49
Exercised	(220,372	)	$	42.44
Forfeited/expired	(7,197	)	$	62.98
Outstanding, December 31, 2011	888,750		$	63.50	4.35	$	29.1
Vested and expected to vest,
December 31, 2011	872,130		$	62.99	4.27	$	29.0
Exercisable, December 31, 2011	712,950		$	57.58	3.38	$	27.4

The following summarizes information about stock options outstanding at December 31, 2011:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted-Average Remaining Contractual Term (in years)	Weighted -Average Exercise Price		Number Exercisable	Weighted - Average Exercise Price
$ 28.61 - $ 53.75	260,373	1.57	$	44.67	260,373	$	44.67
$ 56.05 - $ 62.47	254,351	3.53	$	58.98	254,351	$	58.98
$ 63.00 - $ 84.57	257,726	6.26	$	73.24	164,026	$	69.48
$ 88.00 - $100.06	116,300	8.15	$	93.96	34,200	$	88.36
Totals	888,750				712,950

Intrinsic value for stock options is defined as the difference between the current market value and the grant price. The total intrinsic value on the date of exercise of stock options exercised during 2011, 2010 and 2009 was approximately $14 million, $13 million and $4 million, respectively.

Cash received from stock options exercised during 2011, 2010 and 2009 was $9.4 million, $5.4 million and $3.5 million, respectively. The actual tax benefit realized for the tax deductions from stock options exercised totaled $6.0 million, $5.0 million and $2.0 million in 2011, 2010 and 2009, respectively.

As of December 31, 2011, there was $5.6 million of total unrecognized compensation cost from stock options. The cost is expected to be recognized in the future over a weighted-average period of approximately 3 years.

The weighted-average fair value of stock options granted was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:



	Year Ended December 31,
	2011			2010			2009
Expected volatility	32		%	35		%	34		%
Risk-free interest rate	1.71		%	2.40		%	3.69		%
Expected life (in years)	8.6			8.7			8.4
Expected dividend	—			—			—
Weighted-average fair value of options granted	$	40.81		$	38.19		$	35.56

Volatility is based on the historical volatilities of our common stock for a period equal to the stock option’s expected life. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life represents the number of years that we estimate, based primarily on historical experience, that the options will be outstanding prior to exercise. We do not anticipate paying any cash dividends in the future and therefore use an expected dividend yield of zero.

Restricted Stock

Under the 2007 Plan, restricted stock was last granted in 2008 and there will be no further grants. The fair value of each share of restricted stock is the market value as determined by the closing price of the stock on the day of grant.

The following table summarizes restricted stock activity:



	Year Ended December 31,
	2011				2010				2009
	Restricted Stock Shares		Weighted- Average Grant-Date Fair Value		Restricted Stock Shares		Weighted- Average Grant-Date Fair Value		Restricted Stock Shares		Weighted- Average Grant-Date Fair Value
Nonvested shares, at
beginning of year	68,893		$	83.21	101,247		$	82.86	135,914		$	82.64
Granted	—		—		—		—		—		—
Vested	(26,179	)	$	81.98	(28,518	)	$	81.94	(29,572	)	$	81.94
Cancelled/forfeited	(3,085	)	$	82.63	(3,836	)	$	83.47	(5,095	)	$	82.45
Nonvested shares, at
end of year	39,629		$	84.07	68,893		$	83.21	101,247		$	82.86

As of December 31, 2011, there was approximately $2 million of total unrecognized compensation cost related to restricted stock granted under the 2007 Plan. The cost is expected to be recognized over a remaining weighted-average period of approximately 1 year.

Restricted Stock Units

Restricted stock units, which are rights to receive shares of company stock, were granted from 2007 through 2011 under the 2007 Plan. The fair value of each restricted stock unit is the market value as determined by the closing price of the stock on the day of grant.

The following table summarizes restricted stock unit activity:



	Restricted Stock Units				Weighted- Average Grant-Date Fair Value		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value as of December 31, 2011 (in millions)
Outstanding, January 1, 2009	60,649				$	83.08
Granted	120,685				$	74.40
Vested	(11,885	)			$	79.77
Forfeited	(6,251	)			$	80.20
Outstanding, December 31, 2009	163,198				$	77.01
Granted	126,330		$	—	$	84.57
Vested	(33,825	)	$	—	$	78.41
Forfeited	(13,481	)	$		$	79.71
Outstanding, December 31, 2010	242,222		$	—	$	80.61
Granted	127,920		$	—	$	98.25
Vested	(54,350	)	$	—	$	79.67
Forfeited	(16,430	)	$		$	80.70
Outstanding, December 31, 2011	299,362		$	—	$	88.31	2.24	$	28.8

As of December 31, 2011, there was approximately $20.5 million of total unrecognized compensation cost related to restricted stock units granted under the 2007 Plan. The cost is expected to be recognized over a remaining weighted-average period of approximately 4 years.

Employee Stock Purchase Plans

The fair value of the employees’ purchase rights under the 1988 ESPP was estimated using a Black-Scholes model with the following weighted-average assumptions:



	Year Ended December 31,
	2011			2010			2009
Expected volatility	20		%	23		%	35		%
Risk-free interest rate	0.06		%	0.15		%	0.14		%
Expected life (in years)	.25			.25			.25
Expected dividend	—			—			—
Weighted-average fair value
of purchase rights	$	20.35		$	18.27		$	16.71

The major assumptions are primarily based on historical data. Volatility is based on the historical volatilities of our common stock for a period equal to the expected life of the purchase rights. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. We do not anticipate paying any cash dividends in the future and therefore use an expected dividend yield of zero.

We sold 96,362 shares for $8.1 million, 96,586 shares for $7.4 million and 109,025 shares for $6.8 million under the 1988 ESPP to employees in 2011, 2010 and 2009, respectively. At December 31, 2011, 35,656 shares remain authorized under the 1988 ESPP; however, we do not intend to issue shares from this plan after December 31, 2011. At December 31, 2011, 600,000 shares remain authorized under the 2011 ESPP.

We currently issue new shares to satisfy stock option exercises, restricted stock issuances and ESPP stock purchases.