Stock-based Compensation

9 Months Ended

Dec. 31, 2012

Stock-based Compensation

Stock-based Compensation

Note 11. Stock-based Compensation

Stock Options

At December 31, 2012, the Company had four stock option plans that reserved shares of common stock for issuance to executives and key employees: the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, the 2004 Long-Term Equity Incentive Plan (collectively, the “Prior Plans”) and the 2011 Omnibus Equity Incentive Plan (the “2011 Incentive Plan”). All of these plans were approved by the Company’s stockholders. The 2011 Incentive Plan has authorized the grant of up to 4.8 million shares of the Company’s common stock, which is comprised of 4.0 million shares under the new plan and 0.8 million shares which remained under the Prior Plans. The 2011 Incentive Plan authorizes the Company to provide equity-based compensation in the form of (1) stock options, including incentive stock options, entitling the optionee to favorable tax treatment under Section 422 of the Code; (2) stock appreciation rights; (3) restricted stock and restricted stock units; (4) other share-based awards; and (5) performance awards.  Options issued under these plans vest within one to three years and expire ten years from the grant date.  Stock options granted to the Company’s Chief Executive Officer on January 27, 2010 vest 50% on June 30, 2014 and 50% on June 30, 2015.  If available, the Company issues shares of Common Stock from treasury stock upon exercise of stock options and vesting of restricted stock units.

The Company measured the fair value of these employee stock option grants at the grant date using the Black-Scholes pricing model with the following weighted average assumptions:

	Quarter Ended December 31, 2012
Assumptions:
Expected option lives	4.0 years
Expected volatility	72.4%
Risk-free interest rate	0.5%
Dividend yield	0%

Restricted Stock

The Company grants shares of its common stock as restricted stock to members of the Board of Directors, the Chief Executive Officer and a limited group of executives. Restricted stock and restricted stock units granted to the Board of Directors vest within one year. Restricted stock granted to the Chief Executive Officer on January 27, 2010 vests 50% on June 30, 2014 and 50% on June 30, 2015 while restricted stock granted to the Chief Executive Officer on March 28, 2012 vests on June 30, 2017.  Once vested, restricted shares cannot be sold until 90 days after the Chief Executive Officer, the executive or the member of the Board of Directors, as applicable, resigns from his or her position, or until the individual achieves the targeted ownership under the Company’s stock ownership guidelines, and only to the extent that such ownership exceeds the target.  Restricted stock granted to the limited group of executives vests 25% per year over four years. In the third quarter of fiscal year 2013, 20 thousand shares of restricted stock units were granted to the non-management members of the Board of Directors.  As of December 31, 2012, there was $2.2 million in unrecognized compensation costs related to the unvested restricted stock based compensation arrangements granted.

Long-term Incentive Plans

The Company has various long-term incentive plans (“LTIP”); the 2013/2014 LTIP is 60% based upon the achievement of an Adjusted EBITDA target over a two year period.  For the performance portion of the 2013/2014 LTIP, participants will receive 50% in cash, which, if earned, will be distributed after the end of the two-year measurement period, and 50% in restricted stock units which, if earned, will be distributed 50% after the end of the two-year measurement period and 50% one year after the end of the two-year measurement period.   The remaining 40% of the award is in the form of time-based restricted stock units which will vest one-third on the first, second and third anniversary of the establishment of the plan (May 14, 2013, 2014 and 2015).  The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis.  In the nine months ended December 31, 2012 and December 31, 2011, the Company recorded an expense of $0.9 million and $0.1 million, respectively.  The expense recorded for the 2013/2014 LTIP relates to the time-based restricted stock units.  No expense has been recorded related to the performance piece of the 2013/2014 LTIP, the Company will continue to monitor the likelihood of whether the Adjusted EBITDA financial metric will be realized and will adjust compensation expense to match expectations.

The compensation expense associated with stock-based compensation for the quarters and nine months ended December 31, 2012 and 2011 are recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):

	Quarter Ended December 31, 2012						Quarter Ended December 31, 2011
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	136	$	120	$	103	$	168	$	—	$	(282	)
Selling, general and administrative expenses	130		335		200		233		114		(1,030		)
Research and development	22		—		32		—		—		—
	$	288	$	455	$	335	$	401	$	114	$	(1,312	)

	Nine Months Ended December 31, 2012						Nine Months Ended December 31, 2011
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	562	$	362	$	259	$	333	$	—	$	8
Selling, general and administrative expenses	626		1,089		534		524		384		129
Research and development	72		—		80		—		—		—
	$	1,260	$	1,451	$	873	$	857	$	384	$	137

In the “Operating activities” section of the Condensed Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to Net income (loss) for the nine months ended December 31, 2012 and 2011. Approximately 26 thousand and 118 thousand stock options were exercised in the nine months ended December 31, 2012 and 2011, respectively.