Share-Based Compensation Expense (Tables)

12 Months Ended

Jul. 31, 2013

Share-Based Compensation Expenses for Continuing Operations

The following table presents share-based compensation expenses for continuing operations included in our Consolidated Statements of Operations for fiscal years 2013, 2012, and 2011:

	Year Ended July 31,
	2013			2012			2011
Cost of product sales	$	783		$	802		$	570
Cost of engineering sales		1,156			1,134			—
Research and product development		2,424			2,680			3,181
Selling and marketing		1,096			1,686			1,110
General and administrative		6,142			7,094			4,777
Total share-based compensation expense before tax		11,601			13,396			9,638
Income tax effect		(3,586	)		(4,217	)		(3,055	)
Share-based compensation expense included in net income	$	8,015		$	9,179		$	6,583

Compensation Expense Recognized on Awards

We recognized compensation expense on performance-based awards with earnings per share (“EPS”)-related and total shareholder return (“TSR”)-related conditions along with time-based stock option and restricted stock award conditions as follows:

	Year Ended July 31,
	2013			2012			2011
Performance-based EPS related condition compensation expense	$	3,984		$	7,204		$	3,573
Performance-based TSR related condition compensation expense		3,270			3,648			2,978
Total performance-based stock compensation expense		7,254			10,852			6,551
Time-based stock options and restricted stock		4,347			2,544			3,087
Total share-based compensation expense before tax		11,601			13,396			9,638
Income tax effect		(3,586	)		(4,217	)		(3,055	)
Total share-based compensation included in net income	$	8,015		$	9,179		$	6,583

Fair Value of Option Grant Assumptions

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 fiscal years 2013, 2012, and 2011 as follows:

	Fiscal years ended July 31,
	2013			2012			2011
Expected option term (1)		5.42 years			5.32 years			4.74 years
Expected volatility factor (2)		41	%		42	%		43	%
Risk-free interest rate (3)		0.80	%		0.95	%		1.18	%
Expected annual dividend yield (4)		0.57	%		0.9	%		1.0	%

(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 experience of the weighted average 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 awards with a TSR-related condition at date of grant was estimated using a Monte-Carlo simulation model with the following assumptions:

	Fiscal years ended July 31,
	2013			2012			2011
Stock Price (1)	$	70.04		$	57.81		$	41.96
Expected volatility factor (2)		28	%		29	%		49	%
Risk-free interest rate (3)		0.32	%		0.33	%		0.73	%
Expected annual dividend yield (4)		0.00	%		0.0	%		0.0	%

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

(2) The stock volatility for each grant is determined based on the historical volatility for the peer group companies and our common stock 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 date 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%.

Fair Value of Option Granted under Employee Stock Purchase Plan Assumptions

The fair value of each option granted under the employee stock purchase plan was estimated on the expected grant date using the Black-Scholes option pricing model with the following assumptions:

	Fiscal years ended July 31,
	2013			2012			2011
Expected option term		0.5 years			0.5 years			0.5 years
Expected volatility factor		32	%		42	%		42	%
Risk-free interest rate		0.11	%		0.79	%		0.27	%
Expected annual dividend yield		0.0	%		1.0	%		1.0	%

Stock Option and Restricted Stock Awards Transactions

The following table sets forth the stock option and restricted stock transactions for fiscal year 2013:

Amounts in thousands, except share and per share data	Stock Options Outstanding									Time-Based Unvested Restricted Stock					Performance-Based Unvested Restricted Contingent Restricted Stock
	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, 2012		341,494		$	53.67		4.57	$	3,708		123,071		$	48.40		451,450		$	52.29
Granted		119,391			70.82						123,031			71.78		75,966			74.04
Exercised		(72,259	)		55.22
Vesting of restricted stock		—			—						(41,543	)		55.78		(185,068	)		43.00
Cancelled (forfeited and expired)		(20,629	)		55.10						(6,118	)		51.19		(13,282	)		50.69
Outstanding at July 31, 2013		367,997		$	58.84		4.81	$	4,746		198,441		$	60.10		329,066		$	60.16
Options vested or expected to vest at July 31, 2013 (2)		341,280			58.84		4.81		4,694
Options exercisable at July 31, 2013		175,567		$	56.74		3.32	$	2,598

(1) The performance-based unvested restricted stock is shown in this table at target, except for the number of shares vested, which reflect the shares earned. As of July 31, 2013, the maximum number of performance-based unvested restricted stock available to be earned is 658,132.

(2) In addition to the vested options, we expect 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.