Share-Based Compensation (Tables)

6 Months Ended

Jan. 31, 2013

Share-based Compensation Expenses

The following table presents share-based compensation expense included in our unaudited condensed consolidated statements of operations:

	Three Months Ended January 31,				Six Months Ended January 31,
	2013		2012		2013		2012
Cost of product sales	$	242	$	187	$	406	$	319
Cost of engineering sales		295		-		695		-
Research and product development		860		905		1,168		1,524
Selling and marketing		192		421		532		674
General and administrative		1,721		1,637		3,153		2,884
Total share-based compensation expense before tax	$	3,310	$	3,150	$	5,954	$	5,401

Compensation Expense Recognized on Awards

We recognize compensation expense on performance-based restricted stock awards with earnings per share, or “EPS,” related and total shareholder return, or “TSR,” related conditions along with time-based stock options and restricted stock awards as follows:

	Three Months Ended January 31,				Six Months Ended January 31,
	2013		2012		2013		2012
Peformance based EPS related condition compensation expense	$	1,447	$	1,710	$	2,503	$	2,668
Performance based TSR related condition compensation expense		893		802		1,607		1,577
Total performance-based stock compensation expense		2,340		2,512		4,110		4,245
Time based stock options and restricted stock awards		970		638		1,844		1,156
Total share-based compensation expense before tax	$	3,310	$	3,150	$	5,954	$	5,401

Fair Value of Option Grant Assumptions

The fair value of each option grant was estimated on the grant date using the Black-Scholes valuation model with the following assumptions for the three months ended January 31, 2013 and the six months ended January 31, 2013 and 2012:

	Three Months Ended January 31,			Six Months Ended January  31,
	2013			2013			2012
Expected option term (1)		5.38 years			5.41 years			5.34 years
Expected volatility factor (2)		41	%		41	%		42	%
Risk-free interest rate (3)		0.75	%		0.78	%		0.95	%
Expected annual dividend yield (4)		0.54	%		0.57	%		0.87	%

(1) The option life term factor was estimated using historical data.

(2) The expected volatility factor for each grant is determined based on the review of the weighted average of historical daily price changes of our common stock over the most recent expected option term.

(3) The risk free interest rate for periods equal to the expected term of the stock 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.

Fair Value of Awards Grant Assumptions

The fair value of the RSUs with a TSR related condition at date of grant was estimated using a Monte-Carlo Simulation model with the following assumptions:

	Six Months Ended January 31,
	2013			2012
Stock Price (1)	$	70.04		$	57.81
Expected volatility factor (2)		28	%		29	%
Risk-free interest rate (3)		0.32	%		0.33	%
Expected annual dividend yield (4)		0.0	%		0.0	%

(1) The stock price is the weighted average closing price of our common stock on the date of grant.

(2) The expected volatility factor 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%.