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 January 31,						Six Months Ended January 31,
	2012			2011			2012			2011
Cost of product sales		$	187		$	164		$	319		$	282
Research and product development			905			846			1,524			1,365
Selling and marketing			421			371			674			574
General and administrative			1,637			1,389			2,884			2,331
Share-based compensation expense before tax		$	3,150		$	2,770		$	5,401		$	4,552

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 restricted stock and restricted stock units based on the quoted market price of its common stock. 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 Company did not grant any stock options in the three months ended January 31, 2012 and 2011. The weighted-average grant-date fair values of stock options granted during the six months ended January 31, 2012 and 2011 were $16.36 and $15.50 per share, 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 six months ended January 31, 2012 and 2011, as follows:


	Six Months Ended January 31,
	2012		2011
Expected option term (1)		5.34 years		4.74 years
Expected volatility factor (2)		42%		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.

At January 31, 2012 and January 31, 2011, the Company had target performance contingent restricted stock awards outstanding of 454,222 and 455,048, respectively. These awards, which are in the form of restricted stock shares and units, vest if specific pre-established levels of performance have been achieved at the end of a three-year performance cycle. The three year performance cycles for awards outstanding at January 31, 2012 end on July 31, 2012, 2013, and 2014. The three year performance cycles for awards outstanding at January 31, 2011 ended or will end on July 31, 2011, 2012, and 2013. 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. The Company grants performance awards with either an earnings per share (“EPS”) related performance condition or a total shareholder return (“TSR”) as determined against a specified peer group condition. As of January 31, 2012, of the 454,222 restricted shares/units outstanding, 252,992 had an EPS related performance condition and 201,230 had a TSR related performance condition.

For awards with a EPS-related condition, the Company recognizes compensation expense over the performance period based on the number of shares that are deemed probable of vesting at the end of the three-year performance cycle. The fair value of the awards with an EPS-related condition is determined by the closing price of the Company’s common stock on the date of grant.

For awards with a TSR-related condition, the Company recognizes compensation expense on a straight-line basis, net of estimated forfeitures, over a derived service period of 2.6 years for the awards granted in fiscal year 2012 and 2.8 years for awards granted in fiscal years 2011 and 2010. The weighted average grant date fair values of awards granted with a TSR target was $97.31 for the three and six months ended January 31, 2012. The weighted average grant date fair values of awards granted with a TSR target was $54.27 during the six months ended January 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 January 31, 2012				Six Months Ended January 31,
	Three Months Ended January 31, 2012				2012				2011
Stock Price (1)		$	57.81			$	57.81			$	41.96
Expected volatility factor (2)			29	%			29	%			49	%
Risk-free interest rate (3)			0.33	%			0.33	%			0.73	%
Expected annual dividend yield (4)			0.0	%			0.0	%			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 Company recognized compensation expense on awards with performance-based and time-based conditions as follows:


	Three Months Ended January 31,						Six Months Ended January 31,
	2012			2011			2012			2011
Performance based EPS awards		$	1,710		$	980		$	2,668		$	1,183
Performance based TSR awards			802			902			1,577			1,489
Total performance contingent restricted stock award expense			2,512			1,882			4,245			2,672
Time based stock options and restricted stock awards			638			888			1,156			1,880
Total share-based compensation expense before tax		$	3,150		$	2,770		$	5,401		$	4,552

The following table sets forth the stock option and restricted stock award transactions from July 31, 2011 to January 31, 2012:


	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						65,239			46.44		73,348			77.56
Exercised		(19,157	)		35.08
Vesting of restricted stock											(13,518	)		48.41		(9,665	)		45.98
Cancelled (forfeited and expired)		(28,939	)		46.31						(6,150	)		43.61		(56,705	)		45.86

Outstanding at January 31, 2012		349,652		$	53.80		4.88	$	2,324		97,371		$	45.53		454,222		$	52.05
Options vested or expected to vest at January 31, 2012 (2)		338,785		$	54.06		4.83	$	2,203
Options exercisable at January 31, 2012		202,334		$	59.29		3.78	$	690

(1)	The number of performance-based unvested restricted stock awards is shown in this table at target. As of January 31, 2012, the maximum number of performance-based unvested restricted stock awards available to be earned is 908,444.

(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.