Share-Based Compensation (Tables)

9 Months Ended

Apr. 30, 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 April 30,				Nine Months Ended April 30,
	2013		2012		2013		2012
Cost of product sales	$	127	$	142	$	533	$	461
Cost of engineering sales		223		-		918		-
Research and product development		340		633		1,508		2,157
Selling and marketing		181		238		713		912
General and administrative		1,133		1,302		4,285		4,186
Total share-based compensation expense before tax	$	2,004	$	2,315	$	7,957	$	7,716

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 April 30,				Nine Months Ended April 30,
	2013		2012		2013		2012
Performance based EPS related condition compensation expense	$	9	$	557	$	2,504	$	3,225
Performance based TSR related condition compensation expense		815		1,067		2,422		2,644
Total performance-based stock compensation expense		824		1,624		4,926		5,869
Time based stock options and restricted stock awards		1,180		691		3,031		1,847
Total share-based compensation expense before tax	$	2,004	$	2,315	$	7,957	$	7,716

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 and nine months ended April 30, 2013 and 2012:

	Three Months Ended April 30,						Nine Months Ended April 30,
	2013			2012			2013			2012
Expected option term (1)		5.47 years			5.37 years			5.42 years			5.34 years
Expected volatility factor (2)		41	%		42	%		41	%		42	%
Risk-free interest rate (3)		0.91	%		0.89	%		0.80	%		0.95	%
Expected annual dividend yield (4)		0.52	%		0.71	%		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 historical daily price changes of our common stock over the 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:

	Nine Months Ended April 30,
	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)		0.00	%		0.00	%

(1) The stock price is the 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%.