volatility of the underlying stock. Changes in the subjective input assumptions can materially affect the estimate of fair value of options granted and our results of operations could be materially impacted.

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Expected Volatility:    Our computation of expected volatility is based on a blend of historical volatility of our common stock and implied volatility of tradable forward call options to purchase shares of our common stock. Our decision to incorporate implied volatility was based on our assessment that implied volatility of publicly traded options in our common stock is more reflective of market conditions and, therefore, can reasonably be expected to be a better indicator of expected volatility than historical volatility of our common stock.

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Suboptimal Exercise Factor:    Our computation of the suboptimal exercise factor is based on historical option exercise behavior and the terms and vesting periods of the options granted and is determined for both executives and non-executives.



We grant stock options to our employees on a monthly basis. We have elected to grant all options as non-qualified stock options which vest immediately. As a result of immediate vesting, stock-based compensation expense is fully recognized on the grant date and no estimate is required for post-vesting option forfeitures. We also issue shares through our employee stock purchase program (“ESPP”) which has been determined to be compensatory in nature. Stock-based compensation expense for shares issued under this program is expensed over the offering period of six months.

Our stock-based compensation expenses totaled $12.6 million, $12.3 million and $12.0 million during 2009, 2008 and 2007, respectively. As a result of changes in our compensation structure and related employee elections for 2010 resulting in an increase in the number of options granted to employees, we expect our stock-based compensation expense for 2010 and future periods will increase significantly. See Note 7 to the consolidated financial statements for further information about stock based compensation.

Income Taxes

We record a tax provision for the anticipated tax consequences of our reported results of operations using the asset and liability method. Deferred income taxes are recognized by applying the enacted tax rates applicable to future years to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance for any tax benefits for which future realization is uncertain.

We may recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a