Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation at the grant date, based on the estimated fair value of the award, and recognizes the cost as compensation expense on a straight-line basis, net of estimated forfeitures, over the awards estimated vesting period. The Company's stock-based compensation expense is recorded in General and administrative expenses on the Unaudited Condensed Consolidated Statements of Operations.

The Company issues (i) restricted stock which vests based on the recipient's continued service over time (“Time-Based Awards”) and (ii) restricted stock or restricted stock units which vest based on the Company achieving specified performance measurements (“Performance-Based Awards”).

On June 22, 2012, the Company's Compensation Committee of the Board of Directors (the “Compensation Committee”) approved awards of performance-accelerated restricted stock units (“PARS Units”) and performance-based restricted stock units (“Performance Shares”) to certain of the Company's executive officers. These awards were granted under the Company's 2006 Incentive Plan.

The PARS Units will vest on the five-year anniversary of the grant date and convert to shares of common stock, subject to accelerated vesting after three years if the Company achieves an earnings per share growth target, the calculation of which will not be impacted by any change in generally accepted accounting principles promulgated by standard setting bodies. Upon vesting, the grantees may defer acceptance of the units to a later date, whereas the units will remain outstanding.

The Performance Shares, which are denominated in terms of a target number of shares, may vest after three years in an amount up to 250% of the target number of shares for exceptional performance, but will be forfeited if performance falls below a designated threshold. A portion of the award will be measured on the Company's net income from continuing operations, excluding the effect of any restructuring charges and exit costs and the impact of any changes in generally accepted accounting principles promulgated by standard setting bodies. The ultimate number of shares delivered to recipients and the related compensation cost recognized as expense will be based on actual performance.

The remaining Performance Shares will be measured based on relative total shareholder return (“TSR”), or the Company's stock price return as compared to companies in the Midcap 400 Index as of the beginning of the 3-year period running from fiscal year 2013 to fiscal year 2015.

The fair value of the TSR awards is calculated using a Monte Carlo simulation model on the date of grant. Compensation expense is recognized over the requisite service periods using the straight-line method regardless of the outcome of the market conditions, so long as the award holder remains an employee through the requisite service period.

	As of
	June 29, 2012
Term of award (in years)		3
Volatility		28.1	%
Risk-free interest rate		0.4	%
Expected dividend yield		0.0	%
Actual TSR		(18.9)	%
Stock beta		0.7
Fair value	$	24.63

On July 2, 2012, the Company granted 305,185 stock options under the Company's 2006 incentive Stock Plan to certain of the Company's executive officers. The stock options are exercisable on or after the third anniversary date provided the closing price at the time of exercise is at least $27.05.

The fair value of stock options granted was estimated as of the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:

	As of
	July 2, 2012
Expected dividend yield		0.0	%
Volatility		30.0	%
Risk-free interest rate		0.85	%
Expected life (years)		6.0

Based on these assumptions, the estimated fair value of the options granted during the of six months ended September 28, 2012, was approximately $1,935. As of September 28, 2012, there was $1,778 of unrecognized compensation cost related to the options granted during the six months ended September 28, 2012.

During the six months ended September 28, 2012, the Compensation Committee approved an amendment to the outstanding Performance Shares and PARS Units held by certain of the Company's executive officers to provide that the calculation of the earnings per share targets and the Company's level of achievement of such targets will be based on earnings per share from continuing operations, excluding the effect of any restructuring charges and exit costs. The earnings per share growth rates that must be achieved in order to earn the awards were not changed.

Based on the revised performance targets, stock based compensation expenses decreased $901 ($559, net of tax), or $0.01 per diluted share during the six months ended September 28, 2012.

During the three and six months ended September 28, 2012, the Company changed its estimate of the number of shares to be earned on its performance based awards. This change reflected a decrease in estimated achievement of performance conditions based on actual and expected future financial performance.

As a result of the change in performance estimate during the three and six months ended September 28, 2012, stock based compensation expenses decreased $1,852 ($1,148, net of tax), or $0.02 per diluted share during the three months ended September 28, 2012 and decreased $1,480 ($918, net of tax), or $0.02 per diluted share during the six months ended September 28, 2012.

Outstanding stock-based awards granted under equity incentive plans as of September 28, 2012 and March 30, 2012 are as follows:

	Performance-Based Awards				Time-Based Awards		Stock Options
	Performance
	Shares	PARS		TSR
						Deferred
(in thousands)	Units	Units	Shares	Units	Shares	Units	Shares
Balance, March 30, 2012	301	274	471	-	302	8	49
Granted	144	118	15	59	159	2	305
Decrease from change in estimate	(221)	-	-	-	-	-	-
Vested / Exercised	(139)	(88)	-	-	(54)	-	(1)
Forfeited	(85)	-	(19)	-	(12)	-	-
Expired	-	-	-	-	-	-	-
Balance, September 28, 2012	-	304	467	59	395	10	353

Total stock-based compensation expense included in income from continuing operations during the three months ended September 28, 2012 and September 30, 2011 was approximately $304 and $1,456, respectively, with related income tax benefits of $115 and $553, respectively. Total stock-based compensation expense included in income from continuing operations during the six months ended September 28, 2012 and September 30, 2011 was approximately $1,531 and $3,408, respectively, with related income tax benefits of $582 and $1,295, respectively. No stock-based compensation expense was included in income from discontinued operations.

As of September 28, 2012, there was $13,914 of unrecognized compensation cost related to non-vested restricted stock and restricted stock units granted under the stock incentive plans. The compensation cost related to these non-vested awards is expected to be recognized over a weighted average period of 4.4 years.

On October 24, 2012, the Company entered into the Merger Agreement under which McKesson Corporation will acquire all of its outstanding shares. See Footnote 15, Subsequent Events, for additional information.