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. In April 2009, our stockholders approved our 2009 Stock Incentive Plan (the "2009 Plan"). The aggregate number of shares issuable under the 2009 Plan is 28,609,000 and as of March 31, 2017, there were approximately 2,194,000 shares available for issuance. The 2009 Plan is administered by the Compensation Committee of the Board of Directors and allows for awards of restricted stock and other stock-based awards of our common stock to employees and non-employees. 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 and the terms and conditions of the equity award. Upon the vesting of certain restricted stock awards employees have the option to have the Company withhold shares to satisfy the employee's federal and state tax withholding requirements.

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



	Fiscal Year Ended March 31,
	2017		2016		2015
Cost of goods sold	$	21,056	$	15,323	$	17,121
Selling and marketing	9,963		9,425		8,798
General and administrative	42,908		40,322		33,636
Research and development	7,952		4,926		5,691
Stock-based compensation expense	$	81,879	$	69,996	$	65,246
Capitalized stock-based compensation expense	$	74,717	$	30,367	$	17,423

Restricted Stock Awards

Employee Awards

Restricted stock awards granted to employees under our stock-based compensation plans generally vest annually 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.

ZelnickMedia Non-Employee Awards

Pursuant to the 2011 Management Agreement, we granted 1,100,000 shares of restricted stock to ZelnickMedia that vested annually through May 15, 2015 and 1,650,000 shares of market-based restricted stock that were eligible to vest through May 15, 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. None of the shares of restricted stock grant pursuant to the 2011 Management Agreement remained unvested as of March 31, 2017 and 1,133,000 shares of restricted stock remained unvested as of March 31, 2016. During the fiscal year ended March 31, 2017, 591,912 shares of restricted stock vested and 27,578 shares of restricted stock were forfeited related to the 2011 Management Agreement.

In connection with the 2014 Management Agreement, we granted 372,935 and 525,591 restricted stock units to ZelnickMedia on May 20, 2016 and May 20, 2015, respectively, as follows:



	Fiscal Year Ended March 31,
	2017	2016
Time-based	107,551	151,575
Market-based⁽¹⁾	199,038	280,512
Performance-based⁽¹⁾
New IP	33,174	46,752
Major IP	33,172	46,752
Total-Performance-based	66,346	93,504
Total Restricted Stock Units	372,935	525,591


(1)	Represents the maximum number of shares eligible to vest.

Time-based restricted stock units granted on May 20, 2015 vested on April 4, 2017 and those granted on May 20, 2016 will vest on April 1, 2018, provided that the 2014 Management Agreement has not been terminated prior to such vesting date.

Market-based restricted stock units granted on May 20, 2015 vested on April 4, 2017 and those granted on May 20, 2016 are eligible to vest on April 1, 2018, provided that the 2014 Management Agreement has not been terminated prior to such vesting date. Market-based restricted stock units are eligible to vest based on the Company's Total Shareholder Return (as defined in the relevant grant agreement) relative to the Total Shareholder Return (as defined in the relevant grant agreement) of the companies that constitute the NASDAQ Composite Index as of the grant date measured over a two-year period. To earn the target number of market-based restricted stock units (which represents 50% of the number of the market-based restricted stock units set forth in the table above), the Company must perform at the 50th percentile, with the maximum number of market-based restricted stock units earned if the Company performs at the 75th percentile. Each reporting period, we re-measure the fair value of the unvested shares of market-based restricted stock units granted to ZelnickMedia.

Performance-based restricted stock units granted on May 20, 2015 vested on April 4, 2017 and those granted on May 20, 2016 are eligible to vest on April 1, 2018, provided that the 2014 Management Agreement has not been terminated prior to such vesting date. Performance-based restricted stock units, of which 50% are tied to "New IP" and 50% to "Major IP" (as defined in the relevant grant agreement), are eligible to vest based on the Company's achievement of certain performance metrics (as defined in the relevant grant agreement) of individual product releases of "New IP" or "Major IP" measured over a two-year period. The target number of performance-based restricted stock units that may be earned pursuant to these grants is equal to 50% of the grant amounts set forth in the above table (which represents the maximum number of performance-based restricted stock units that may be earned). Each reporting period, we assess the performance metric and upon achievement of certain thresholds record an expense for the unvested portion of the shares of performance-based restricted stock units. Certain performance metrics, based on unit sales, have been achieved as of March 31, 2017 and 2016 for the "New IP" and "Major IP" performance-based restricted stock units granted on April 1, 2014, May 20, 2015, and May 20, 2016.

The unvested portion of time-based, market-based and performance-based restricted units granted pursuant to the 2014 Management Agreement as of March 31, 2017 and 2016 was 898,526 and 1,145,081, respectively.

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



	Fiscal Year Ended March 31,
	2017				2016				2015
	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	0.9	%	0.7	%	0.6	%	0.4	%	0.4	%	0.1	%
Expected stock price volatility	31.2	%	30.1	%	33.9	%	32.2	%	31.9	%	33.7	%
Expected service period (years)	1.5		1.0		1.9		1.1		2.0		3.7
Dividends	None		None		None		None		None		None

The estimated value of time-based restricted stock awards granted to employees during the fiscal years ended March 31, 2017, 2016 and 2015 was $49.43, $33.74 and $21.52 per share, respectively. The estimated value of market-based restricted stock awards granted to employees during the fiscal years ended March 31, 2017, 2016 and 2015 was $63.60, $43.66 and $36.56 per share, respectively. For the fiscal years ended March 31, 2017, 2016 and 2015, the estimated value of time-based restricted stock awards granted to ZelnickMedia was $36.37, $27.65 and $21.92 per share, respectively. For the fiscal years ended March 31, 2017, 2016 and 2015, the estimated value of the market-based restricted stock awards granted to ZelnickMedia was $51.92, $58.45 and $24.21 per share, respectively.

The following table summarizes the activity in non-vested restricted stock awards to employees and ZelnickMedia under our stock-based compensation plans with performance and market based restricted stock awards presented at 100% of target number of shares that may potentially vest:



	Shares (in thousands)		Weighted Average Fair Value on Grant Date
Non-vested restricted stock at March 31, 2016	6,405		$	24.74
Granted	1,161		47.48
Vested	(3,220	)	23.54
Forfeited	(87	)	20.76
Non-vested restricted stock at March 31, 2017	4,259		$	32.93

The maximum number of restricted stock awards that could vest is 228,587 for performance-based and market-based restricted stock awards granted during the current year. As of March 31, 2017, the maximum number of shares that could vest is 886,360 for performance-based and market-based restricted stock units outstanding.

As of March 31, 2017, the total future unrecognized compensation cost, net of estimated forfeitures, related to outstanding unvested restricted stock was $95,965 and will be recognized as compensation expense on a straight-line basis over a weighted-average period of approximately 1 year, or capitalized as software development costs.

Liability Awards

During the fiscal year ended March 31, 2016, we issued 5,500,000 of time and performance based restricted stock units, to certain employees, which currently can only be settled in cash and are therefore treated as liability awards. The awards are expected to vest between fiscal 2019 and fiscal 2022. As of March 31, 2017, the total future unrecognized compensation cost, based on the estimated cash payment terms, is estimated to be $165,596 and will be recognized as compensation expense over a weighted-average period of approximately 3.9 years, or capitalized as software development costs.