11. Employee Stock and Savings Plans

Stock Options Plans and Stock Plans

On July 1, 2010, our shareholders approved the 2010 Omnibus Incentive Plan (Incentive Plan) which replaces our prior 1982 Stock Option Plan, Nonqualified Stock Option Plan, 1986 Stock Plan, and 1987 Non-Employee Directors’ Stock Plan. The Incentive Plan is administered by the Compensation Committee of our Board of Directors and permits accelerated vesting of outstanding options, restricted stock units, restricted stock awards, and other equity incentives upon the occurrence of certain changes in control of our company. The implementation of the Incentive Plan did not modify the terms of any awards granted under prior plans.

Stock options and restricted stock units under the Incentive Plan are generally expected to vest over four years. Stock options have an expiration date of ten years from the date of grant and an exercise price not less than the fair market value of the shares on the date of grant.

As of January 31, 2012, a total of 7,299 shares of common stock were available for future grant under the above Incentive Plan.

We assumed the stock plans of Valor on March 18, 2010. Under the terms of our merger agreement with Valor, options outstanding under these plans were converted to options to purchase shares of our common stock. Options issued under these plans vest over four years from the original grant date and have an expiration date of 10 years from the original grant date. The exercise price of each converted option is equal to the product of the original exercise price and the original number of options granted divided by the number of converted options received. These stock plans have been suspended and no future awards will be granted under these plans. Options for a total of 2,160 shares of our common stock have been authorized and issued under the Valor plans.

On December 14, 2009, our shareholders approved the exchange of certain options for restricted stock units. Eligible for the exchange were options held by non-executive employees with an exercise price equal to or greater than $11.00 which were granted prior to January 7, 2009 and expire after August 15, 2010. The offer expired February 5, 2010. Effective February 8, 2010 a total of 6,945 options were exchanged for 557 restricted stock units. Total incremental cost of $491 resulted from this exchange. The incremental cost was amortized over two years.

Stock options outstanding, the weighted average exercise price, and transactions involving the stock option plans are summarized as follows:


	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value
Balance as of January 31, 2009		20,597		$	13.19		5.33	$	8

Granted		970			7.90
Assumed in acquisition		285			9.19
Exercised		(259	)		7.08
Forfeited		(246	)		10.10
Expired		(2,365	)		13.23

Balance as of January 31, 2010		18,982		$	12.98		3.75	$	10,347

Granted		508			10.14
Assumed in acquisition		2,160			5.05
Exercised		(1,640	)		5.27
Forfeited		(84	)		7.23
Expired		(1,114	)		16.86
Exchanged		(6,945	)		16.77

Balance as of January 31, 2011		11,867		$	9.94		5.35	$	44,780

Granted		517			10.70
Exercised		(2,227	)		6.82
Forfeited		(126	)		7.79
Expired		(844	)		18.38

Balance as of January 31, 2012		9,187		$	10.00		5.18	$	39,303

Options exercisable as of January 31, 2012		7,428		$	10.38		4.48	$	29,647

Options vested as of January 31, 2012 and options expected to vest after January 31, 2012		9,187		$	10.00		5.18	$	39,303

The total intrinsic value of options exercised and cash received from options exercised was as follows:


Year ended January 31,	2012		2011		2010
Intrinsic value	$	15,802	$	7,812	$	511
Cash received	$	15,194	$	8,639	$	1,830

The following table summarizes restricted stock activity:


	Restricted Stock Units			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Nonvested as of January 31, 2010		226		$	9.46		2.26	$	1,816

Granted		1,990			9.61
Vested		(58	)		9.56
Cancelled		(27	)		8.52

Nonvested as of January 31, 2011		2,131		$	9.61		1.72	$	27,130

Granted		2,236			10.91
Vested		(634	)		9.31
Cancelled		(137	)		10.46

Nonvested as of January 31, 2012		3,596		$	10.71		1.77	$	49,881

Employee Stock Purchase Plans

We have an ESPP for U.S. employees and an ESPP for certain foreign subsidiary employees. Prior to July 1, 2010, the ESPPs generally provided for overlapping two-year offerings commencing on January 1 and July 1 of each year with purchases every six months during those offering periods. On July 1, 2010, the ESPPs were amended. Beginning July 1, 2010, the ESPPs provide for six month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. Each eligible employee may purchase up to six thousand shares of stock on each purchase date at prices no less than 85% of the lesser of the fair market value of the shares on the offering date or on the purchase date. Offerings in process as of July 1, 2010 with two year terms extending beyond that date were replaced by the six month offering beginning on July 1, 2010. There was no incremental value associated with the replacement of unexpired ESPP purchase rights. As of January 31, 2012, 5,835 shares remain available for future purchase under the ESPPs.

The following table summarizes shares issued under the ESPPs:


Year ended January 31,	2012		2011		2010
Shares issued under the ESPPs		2,099		3,461		4,143
Cash received for the purchase of shares under the ESPPs	$	22,155	$	19,019	$	18,237
Weighted average purchase price per share	$	10.55	$	5.50	$	4.40

Stock-Based Compensation Expense

We estimate the fair value of stock options and purchase rights under our ESPPs using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model incorporates several highly subjective assumptions including expected volatility, expected term, and interest rates.

In determining expected volatility for options, we include the elements listed below at the weighted percentages presented:

•

Historical volatility of our shares of common stock at 35%;

•

Historical volatility of shares of comparable companies at 20%;

•

Implied volatility of our traded options at 30%; and

•

Implied volatility of traded options of comparable companies at 15%.

The greatest weighting is provided to our historic volatility based on the amount of consistent historic information available. A lesser weighting is applied to the implied volatility of our traded options due to a low volume of trades and shorter terms. We also include the historic and implied volatility of comparable companies in our industry in an effort to capture a broader view of the marketplace.

The relative weighting percentages are periodically reviewed for reasonableness and are subject to change depending on market conditions and our particular facts and circumstances.

In determining expected volatility for purchase rights under our ESPPs, we use the historical volatility of our shares of common stock. Prior to the July 1, 2010 offering, we based the expected term of our ESPPs on the average term of the series of offerings. Beginning with the July 1, 2010 offering, the expected term is the 6 month offering period.

We base the expected term of our stock options on historical experience.

The risk-free interest rate for periods within the contractual life of the stock options and purchase rights under our ESPPs is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of restricted stock units is the market value as of the grant date.

The weighted average grant date fair values are summarized as follows:


Year ended January 31,	2012		2011		2010
Options granted	$	5.43	$	5.02	$	4.06
Restricted stock units granted	$	10.91	$	9.61	$	8.78
ESPP purchase rights	$	3.19	$	2.17	$	2.77

The fair value calculations used the following assumptions:


Year ended January 31,	2012		2011		2010
Stock Option Plans
Risk-free interest rate		1.2%		1.4% -2.6%		2.3% -3.1%
Dividend yield		0%		0%		0%
Expected life (in years)		6.3		5.5 - 6.5		5.0 - 6.5
Volatility (range)		53%		50% - 55%		45% - 55%
Volatility (weighted average)		53%		51%		51%


Year ended January 31,	2012		2011		2010
Employee Stock Purchase Plans
Risk-free interest rate		0.05% -0.18%		0.2%		0.2% -1.0%
Dividend yield		0%		0%		0%
Expected life (in years)		0.5		0.5		1.3
Volatility (range)		32% - 38%		38% -64%		46% - 72%
Volatility (weighted average)		35%		40%		56%


Year ended January 31,	2012		2011		2010
Acquired Company Options Exchange
Risk-free interest rate		—		0.1% -3.3%		1.6% -3.2%
Dividend yield		—		0%		0%
Expected life (in years)		—		0.1 - 7.7		3.5 - 8.4
Volatility (range)		—		35% - 72%		54% - 59%
Volatility (weighted average)		—		60%		57%


Year ended January 31,	2012		2011		2010
Employee Options Exchange
Risk-free interest rate		—		0.2% -2.7%		—
Dividend yield		—		0%		—
Expected life (in years)		—		0.5 - 5.9		—
Volatility (range)		—		43% - 77%		—
Volatility (weighted average)		—		43%		—

The following table summarizes stock-based compensation expense included in the results of operations and the tax benefit associated with the exercise of stock options:


Year ended January 31,	2012		2011		2010
Cost of revenues:
Service and support	$	1,065	$	888	$	1,618
Operating expense:
Research and development		8,203		7,785		10,931
Marketing and selling		5,874		6,112		8,406
General and administration		6,516		5,726		5,204

Equity plan-related compensation expense ⁽¹⁾	$	21,658	$	20,511	$	26,159

Tax effect of the exercise of stock options	$	—	$	—	$	(96	)

(1)

All of equity plan-related compensation expense for the years ended January 31, 2012 and 2011 relates to stock options, stock awards, and the ESPPs. Equity plan-related compensation expense for the year ended January 31, 2010 includes $25,657 relating to stock options, stock awards, and the ESPPs and $502 relating to the amortization of expense associated with stock issued to the founders of a company we acquired during the year ended January 31, 2008.

As of January 31, 2012, we had $5,485 in unrecognized compensation cost related to nonvested options which is expected to be recognized over a weighted average period of 1.3 years and $30,528 in unrecognized compensation cost related to nonvested restricted stock units which is expected to be recognized over a weighted average period of 1.7 years.

Employee Savings Plan

We have an employee savings plan (the Savings Plan) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, participating U.S. employees may defer a portion of their pretax earnings, up to the Internal Revenue Service annual contribution limit. We currently match 50% of eligible employee’s contributions, up to a maximum of 6% of the employee’s earnings. Employer matching contributions vest over five years, 20% for each year of service completed. Our matching contributions to the Savings Plan were as follows:


Year ended January 31,	2012		2011		2010
Employer matching contribution	$	7,141	$	6,413	$	4,928