4. Share-based compensation:

The following table presents share-based compensation expenses included in the Company’s unaudited Consolidated Statements of Operations:


	Three Months Ended October 31,
	2011		2010
Cost of product sales	$	132	$	118
Research and product development		619		519
Selling and marketing		253		203
General and administrative		1,247		942
Share-based compensation expense before tax	$	2,251	$	1,782

The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s outstanding stock options granted during fiscal years 2012 and 2011. The Company estimates the fair value of performance based restricted stock and restricted stock units with market conditions based on the use of a Monte-Carlo Simulation Model. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

The weighted-average grant-date fair values of options granted were $14.86 and $15.50 per share during the three months ended October 31, 2011 and 2010, respectively. The fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions for the three months ended October 31, 2011 and 2010 as follows:


	Three Months Ended October 31,			Three Months Ended October 31,
	2011			2010
Expected option term (1)		5.34 years			4.74 years
Expected volatility factor (2)		38	%		43	%
Risk-free interest rate (3)		0.95	%		1.18	%
Expected annual dividend yield (4)		0.87	%		1.00	%

(1)	The option life was determined by estimating the expected option life using historical data.

(2)	The stock volatility for each grant is determined based on the review of the weighted average of historical daily price changes of the Company’s Common Stock over the most recent five years, which approximates the expected option life of the grant.

(3)	The risk-free interest rate for periods equal to the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

(4)	The expected annual dividend yield is calculated by dividing the expected annual dividends by the stock price on the date of grant.

In the year ended July 31, 2009 (“fiscal year 2009”), the Committee granted 45,751 performance awards under the Company’s 2007 Restricted Stock Plan. These shares vested if specific pre-established levels of performance were achieved at the end of a three-year performance cycle, which ended July 31, 2011. The performance goal for the performance awards was based solely on the compounded annual growth rate of an adjusted earnings per share metric for the Company. The actual number of shares issued was determined at the end of the three-year performance cycle and could have ranged from zero to 200% of the target award. The actual number of shares issued included the payment of dividends on the actual number of shares earned. The Company recognized compensation over the performance period based on the number of shares that were deemed to be probable of vesting at the end of the three-year performance cycle. The total number of shares that vested at July 31, 2011 was 9,665. The expense on these vested shares was approximately $569, of which $0 was recorded in the three months ended October 31, 2010.

In fiscal year 2010, the Committee granted 223,834 performance awards in the form of shares of restricted stock and restricted stock units pursuant to the Company’s 2007 Restricted Stock Plan and 2009 Stock Incentive Plan, of which 30,510 performance awards have been forfeited through October 31, 2011. These awards will vest as follows: 96,666 will vest based upon achievement of certain targets over the three-year period ending July 31, 2012 with respect to the Company’s cumulative non-GAAP earnings per share and 96,658 will vest based upon achievement of certain targets over the three-year period ending July 31, 2012 with respect to the Company’s relative total shareholder return (“TSR”) as determined against a specified peer group. The actual number of shares/units to be issued will be determined at the end of the three-year performance cycle and can range from zero to 200% of the target award, or up to 386,648 shares/units. The issuance of the shares/units will be accompanied by the payment of accumulated dividends on the actual number of shares earned. The maximum compensation expense for the performance awards with the non-GAAP earnings per share target is $7,747, based on a weighted average grant date fair value of $40.07 per share as determined by the closing price of the Company’s common stock on the date of grant. The Company is recognizing compensation expense over the performance period for the performance awards with the non-GAAP earnings per share target based on the number of shares/units that are deemed to be probable of vesting at the end of the three-year performance cycle. As of October 31, 2011, the Company estimated that total non-GAAP earnings per share awards covering 83,672 shares/units with a value of $3,352 were deemed probable of vesting. The Company recognized compensation expense of $337 and $203 during the three months ended October 31, 2011 and 2010, respectively for the performance awards with the non-GAAP earnings per share target based on the number of shares deemed probable of vesting.

In fiscal year 2011, the Committee granted 217,233 performance awards in the form of shares of restricted stock units pursuant to the Company’s 2009 Stock Incentive Plan, of which 8,445 performance awards have been forfeited through October 31, 2011. These awards will vest as follows: 131,250 will vest based upon achievement of certain targets over the three-year period ending July 31, 2013 with respect to the Company’s cumulative non-GAAP earnings per share and 77,538 will vest based upon achievement of certain targets over the three-year period ending July 31, 2013 with respect to the Company’s relative TSR as determined against the Russell 2000 Index, of which the Company is a member. The actual number of units to be issued will be determined at the end of the three-year performance cycle and can range from zero to 200% of the target award, or up to 417,576 units. The issuance of the units will be accompanied by the payment of accumulated dividends on the actual number of shares earned. The maximum compensation expense for the performance awards with the non-GAAP earnings per share target is $11,027, based on a weighted average grant date fair value of $42.01 per share as determined by the closing price of the Company’s common stock on the date of grant. The Company is recognizing compensation expense over the performance period for the performance awards with the non-GAAP earnings per share target based on the number of units that are deemed to be probable of vesting at the end of the three-year performance cycle. As of October 31, 2011, the Company estimated that total non-GAAP earnings per share awards covering 114,925 units with a value of $4,828 were deemed probable of vesting. The Company recognized compensation expense of $521 and $99 during the three months ended October 31, 2011 and 2010, respectively for the performance awards with the non-GAAP earnings per share target based on the number of shares deemed probable of vesting.

The compensation expense for the performance awards granted with a TSR target is estimated to be $3,666 and $4,462 for awards granted in fiscal year 2011 and fiscal year 2010, respectively. The compensation expense is being recognized on a straight-line basis, net of estimated forfeitures, over a derived service period of 2.8 and 2.7 years for the awards granted in fiscal years 2011 and 2010, respectively. The weighted average grant date fair values of awards granted with a TSR target was $54.27 during the three months ended October 31, 2010. No TSR awards were granted in the three months ended October 31, 2011. The fair value of awards with a TSR target at date of grant was estimated using a Monte-Carlo Simulation model with the following assumptions:


	Three Months Ended October 31,
	2010
Stock Price (1)	$	41.96
Expected volatility factor (2)		49	%
Risk-free interest rate (3)		0.73	%
Expected annual dividend yield (4)		0.0	%

(1)	The stock price is the weighted average closing price of the Company’s common stock on the dates of grant.

(2)	The stock volatility for each grant is determined based on the historical volatility for the peer group companies over a period equal to the remaining term of the performance period from the date of grant for all awards.

(3)	The risk-free interest rate for periods equal to the performance period is based on the U.S. Treasury yield curve in effect at the time of grant.

(4)	Dividends are considered reinvested when calculating TSR. For the purpose of the fair value model, the dividend yield is therefore considered to be 0%.

The following table sets forth the stock option and restricted stock award transactions from July 31, 2011 to October 31, 2011:


	Stock Options Outstanding									Time-Based Unvested Restricted Stock Awards					Performance-Based Unvested Restricted Stock Awards
	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value		Number of Shares/ Units			Weighted Average Grant Date Fair Value		Number of Shares/ Units (1)			Weighted Average Grant Date Fair Value
Outstanding at July 31, 2011		274,522		$	55.18		4.34	$	1,466		51,800		$	44.90		447,244		$	46.95
Granted		123,226			46.06						62,839			45.98		—			—
Exercised		(7,649	)		40.39
Vesting of restricted stock											(10,664	)		50.68		(9,665	)		45.98
Cancelled (forfeited and expired)		(9,775)			47.55						(500)			58.41		(30,442)			55.18
Outstanding at October 31, 2011		380,324			52.72		5.18	$	2,295		103,475			44.89		407,137			46.36
Options vested or expected to vest at October 31, 2011 (2)		366,396			52.99		5.12		2,173
Options exercisable at October 31, 2011		217,809			57.59		4.08		885

(1)	The number of performance-based unvested restricted stock awards is shown in this table at target. As of October 31, 2011, the maximum number of performance-based unvested restricted stock awards available to be earned is 814,274.

(2)	In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the unvested options.