14. STOCK-BASED COMPENSATION

Our stock-based compensation plans are broad-based, long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests. For similar reasons, we also granted non-employee equity awards, which are subject to variable accounting, to ZelnickMedia in connection with their contract to provide executive management services to us. We began replacing stock option awards with restricted stock awards during the fiscal year ended October 31, 2007. We issue shares to employees on the date the restricted stock is granted and therefore shares granted have voting rights, participate in dividends and are considered issued and outstanding.

In April 2009, our stockholders approved our 2009 Stock Incentive Plan (the "2009 Plan"). The aggregate number of shares issuable under this plan was 6,409,000, representing 4,900,000 new shares available for grant approved by our stockholders and 1,509,000 shares allocated from the Incentive Stock Plan and 2002 Stock Option Plan (the "2002 Plan"). Our stockholders have further approved amendments to the 2009 Plan to increase the available shares for issuance by 2,750,000 in April 2010, by 5,000,000 in September 2011 and by 2,800,000 in September 2012. The 2009 Plan is administered by the Compensation Committee of the Board of Directors and allows for awards of restricted stock, deferred stock and other stock-based awards of our common stock to employees and non-employees. As of March 31, 2013, there were approximately 2,766,000 shares available for issuance under the 2009 Plan.

In April 2008, our stockholders approved an increase to the number of shares available for grant under the Incentive Stock Plan from 4,500,000 to 6,500,000. The Incentive Stock Plan is administered by the Compensation Committee of the Board of Directors and allows for awards of restricted stock, deferred stock and other stock-based awards of our common stock to employees and non-employees. As of March 31, 2013, there were no shares available for issuance under the Incentive Stock Plan.

In June 2002, our stockholders approved our 2002 Plan, as previously adopted by our Board of Directors, pursuant to which officers, directors, employees and consultants may receive options to purchase shares of our common stock. The aggregate amount of shares issuable under the 2002 Plan was 11,000,000 shares. As of March 31, 2013, there were no shares available for issuance under the 2002 Plan.

Subject to the provisions of the plans, the Board of Directors or any Committee appointed by the Board of Directors, has the authority to determine the individuals to whom the equity awards are to be granted, the number of shares to be covered by each equity award, the vesting period, restrictions, if any, on the equity award, the terms and conditions of the equity award.

The following table summarizes stock-based compensation expense included in our Consolidated Statements of Operations:

	Fiscal Year Ended March 31,

	2013		2012		2011
Cost of goods sold	$	10,060	$	5,144	$	10,695
Selling and marketing		5,562		5,042		4,659
General and administrative		17,824		19,963		9,781
Research and development		2,319		3,345		3,630

Stock-based compensation expense		35,765		33,494		28,765
Capitalized stock-based compensation expense		6,964		11,220		11,266

Total stock-based compensation expense	$	42,729	$	44,714	$	40,031

During the fiscal years ended March 31, 2013, 2012 and 2011, we recorded $8,789, $13,365 and $3,159, respectively, of stock-based compensation expense for non-employee awards, which was included in general and administrative expenses.

We capitalize and amortize stock-based compensation awards in accordance with our software development cost accounting policy.

Restricted Stock

Restricted stock awards granted to employees under our stock-based compensation plans generally vest over 3 years from the date of grant. Certain restricted stock awards granted to key officers, senior-level employees, and key employees vest based on market conditions, primarily related to the performance of the price of our common stock.

In June 2008, pursuant to the Management Agreement, we granted 600,000 shares of restricted stock to ZelnickMedia that vested annually over a three year period and 900,000 shares of market-based restricted stock that could have vested over a four year period through June 2012, provided that the Company's Total Shareholder Return (as defined in the relevant grant agreements) was at or higher than the 75^th percentile of the NASDAQ Industrial Index measured annually on a cumulative basis. Because the price of our common stock did not achieve its performance targets, the 900,000 shares of market-based restricted stock were forfeited in June 2012. For the fiscal years ended March 31, 2012 and 2011, we recorded expenses of $499 and $1,594, respectively of stock-based compensation (a component of general and administrative expenses) related to the shares of restricted stock granted pursuant to the Management Agreement.

In addition, pursuant to the New Management Agreement, we granted 1,100,000 shares of restricted stock to ZelnickMedia that will vest annually through April 1, 2015 and 1,650,000 shares of market-based restricted stock that will be eligible to vest through April 1, 2015, based on the Company's Total Shareholder Return (as defined in the relevant grant agreements) relative to the Total Shareholder Return of the companies that constitute the NASDAQ Composite Index measured annually on a cumulative basis. To earn all of the shares of market-based restricted stock, the Company must perform at the 75th percentile, or top quartile, of the NASDAQ Composite Index. The unvested portion of the shares of restricted stock granted pursuant to the New Management Agreement as of March 31, 2013 and 2012 was 2,169,750 and 2,750,000 shares, respectively. For the fiscal years ended March 31, 2013 and 2012, we recorded expenses of $8,789 and $12,866 of stock-based compensation (a component of general and administrative expenses) related to the shares of restricted stock granted pursuant to the New Management Agreement.

We measure the fair value of our market-based awards to employees and non-employees using the Monte Carlo Simulation method, which takes into account assumptions such as the expected volatility of our common stock, the risk-free interest rate based on the contractual term of the award, expected dividend yield, vesting schedule and the probability that the market conditions of the award will be achieved. The estimated value of market-based restricted stock awards granted to employees during the fiscal years ended March 31, 2013, 2012 and 2011 was $9.36, $16.29 and $15.36 per share, respectively.

Each reporting period, we remeasure the fair value of the unvested portion of the market-based restricted stock awards granted to ZelnickMedia. For the fiscal years ended March 31, 2013 and 2012, the estimated value of the awards granted to ZelnickMedia during the fiscal year ended March 31, 2012 was $7.65 and $12.10 per share, respectively. For the fiscal years ended March 31, 2012 and 2011, the estimated value of the awards granted to ZelnickMedia during the fiscal year ended October 31, 2008 was $0.02 and $1.11 per share, respectively.

The following table summarizes the weighted-average assumptions used in the Monte Carlo Simulation method:

	Fiscal Year Ended March 31,

	2013						2012						2011
	Employee Market-Based			Non-Employee Market-Based			Employee Market-Based			Non-Employee Market-Based			Employee Market-Based			Non-Employee Market-Based
Risk-free interest rate		0.6	%		0.3	%		0.4	%		0.4	%		1.4	%		0.5	%
Expected stock price volatility		49.3	%		40.0	%		58.2	%		46.3	%		52.6	%		55.0	%
Expected service period (years)		2.8			3.3			2.0			3.1			2.0			4.0
Dividends		None			None			None			None			None			None

The following table summarizes the activity in non-vested restricted stock awarded to employees and ZelnickMedia under our stock-based compensation plans:

			Weighted Average Fair Value on Grant Date

Non-vested restricted stock at March 31, 2012	5,724		$	11.06
Granted	4,581			10.08
Vested	(1,867	)		12.87
Forfeited	(1,081	)		17.43

Non-vested restricted stock at March 31, 2013	7,357		$	11.33

As of March 31, 2013, the total future unrecognized compensation cost, net of estimated forfeitures, related to outstanding unvested restricted stock was approximately $36,516 and will be recognized as compensation expense on a straight-line basis over the remaining vesting period, or capitalized as software development costs.

Stock Options

As of March 31, 2013, all of the outstanding stock options are exercisable and expire at various times through the fiscal year ending March 31, 2018. Options granted generally vested over a period of three to four years and expire within a period of five to ten years.

Pursuant to the Management Agreement, in August 2007, we issued stock options to ZelnickMedia to acquire 2,009,075 shares of our common stock at an exercise price of $14.74 per share, which vested over 36 months and expire 10 years from the date of grant. Each month, we remeasured the fair value of the unvested portion of such options and recorded compensation expense for the difference between total earned compensation at the end of the period and total earned compensation at the beginning of the period. As a result, changes in the price of our common stock affected compensation expense or benefit recognized from period to period. For the fiscal year ended March 31, 2011, we recorded $1,565 of stock-based compensation related to this option grant.

The following table summarizes the activity in stock options awarded to employees and ZelnickMedia under our stock-based compensation plans and also includes non-plan options:

	Fiscal Year Ended March 31,

	2013					2012					2011
(options in thousands)	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of period		2,164		$	15.16		2,317		$	15.37		3,514		$	18.17
Exercised		—			—		(22	)		10.96		(65	)		11.30
Forfeited		(155	)		20.59		(131	)		19.52		(1,132	)		24.30

Outstanding at end of period		2,009		$	14.74		2,164		$	15.16		2,317		$	15.37

Exercisable at period-end		2,009		$	14.74		2,164		$	15.16		2,317		$	15.37
Remaining weighted average contractual life of options exercisable (years)					4.4					5.0					5.7
Aggregate intrinsic value				$	2,833				$	1,296				$	1,354

The total estimated fair value of options vested during the fiscal year ended March 31, 2011 was $1,880.

The fair value of our stock options was estimated using the Black-Scholes option-pricing model. This model requires the input of assumptions regarding a number of complex and subjective variables that would usually have a significant effect on the fair value estimate. These variables included, but were not limited to, the volatility of our common stock price, the current market price of our common stock, the risk-free interest rate and expected exercise term. The following table summarizes the weighted average assumptions used in the Black-Scholes option-pricing model to value outstanding stock options awarded:



Risk-free interest rate	3.4	%
Expected stock price volatility	57.2	%
Expected term until exercise (years)	7.3
Dividends	None

Valuation Assumptions

Generally, our assumptions are based on historical information and judgment is required to determine if historical trends could be indicators of future outcomes. For the fiscal years ended March 31, 2013, 2012 and 2011, we estimated stock price volatility of all stock-based compensation awards using a combination of historical volatility and implied volatility for publicly traded options on our common stock. In addition, stock-based compensation expense is calculated based on the number of awards that are ultimately expected to vest, and therefore are reduced for estimated forfeitures. Our estimate of expected forfeitures is based on our historical annual forfeiture rate of 5%. The estimated forfeiture rate, which is evaluated at each balance sheet date throughout the life of the award, provides a time-based adjustment of forfeited shares. The estimated forfeiture rate is reassessed at each balance sheet date and may have changed based on new facts and circumstances.

Share Repurchase Program

In January 2013, our Board of Directors authorized the repurchase of up to 7,500,000 shares of our common stock. The authorization permits the Company to purchase shares from time to time through a variety of methods, including in the open market or through privately negotiated transactions, in accordance with applicable securities laws. It does not obligate the Company to make any purchases at any specific time or situation. Repurchases are subject to the availability of stock, prevailing market conditions, the trading price of the stock, the Company's financial performance and other conditions. The program may be suspended or discontinued at any time for any reason. Through March 31, 2013, the Company has not repurchased any shares of our common stock as part of the program.