Share-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized over the employee’s requisite service period. The following table summarizes total share-based compensation expense included in the Condensed Consolidated Statements of Income (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Cost of revenues	$	243		$	270		$	477		$	514
Research and development	833			652			1,523			1,304
Selling, general and administrative	873			772			1,671			1,495
Pre-tax share-based compensation expense	1,949			1,694			3,671			3,313
Less income tax effect	(682		)	(552		)	(1,231		)	(1,102		)
Net share-based compensation expense	$	1,267		$	1,142		$	2,440		$	2,211

During the three months ended June 30, 2014 and 2013, the Company granted 0.1 million and 0.2 million stock options, respectively, at weighted average fair values of $2.90 and $3.04 per share, respectively. During both the six months ended June 30, 2014 and 2013, the Company granted 0.3 million stock options at weighted average fair values of $2.82 and $2.97 per share, respectively. The fair value of the Company’s stock options granted under the Company’s option plans was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
Expected term (years)	5.9		5.8		6.0		5.9
Stock volatility	30.5	%	36.0	%	30.8	%	34.7	%
Risk free interest rates	2.0	%	1.6	%	2.0	%	1.3	%
Dividends during expected terms	1.8	%	1.7	%	1.8	%	1.7	%

The Company also grants RSUs to its employees. In the three months ended June 30, 2014 and 2013, the Company granted 0.2 million and 0.1 million RSUs, respectively, at weighted average fair values of $10.51 and $9.56 per share, respectively. In the six months ended June 30, 2014 and 2013, the Company granted 0.5 million and 0.2 million RSUs, respectively, at weighted average fair values of $10.18 and $9.81 per share, respectively.

As of June 30, 2014, there was $6.0 million of total unrecognized share-based compensation expense related to non-vested stock option awards and $10.3 million related to non-vested RSUs, which are expected to be recognized over a weighted-average period of 2.7 and 3.0 years, respectively. Total share-based compensation expense capitalized as part of inventory as of both June 30, 2014 and December 31, 2013 was $0.2 million.

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees are permitted to have salary withholdings to purchase shares of common stock at a price equal to 95% of the market value of the stock at the end of each three-month offer period, subject to an annual limitation. The ESPP is considered non-compensatory per current share-based compensation accounting guidelines.