Note 17. Share-based Compensation

At September 30, 2013, the Company had four share-based employee compensation plans (the “Old Plan,” the “2003 Plan,” the 2006 Long-term Incentive Plan, or “2006 LTIP” and the 2011 Long-Term Incentive Plan or “2011 LTIP”).

At September 30, 2013, there were 3.0 million options outstanding. Of those, 1.2 million were options issued under the 2006 LTIP, 561 thousand were issued under the 2003 Plan, and 1.2 million under the 2011 Plan. There are no further shares authorized to be issued under the Old Plan. Under the 2003 Plan, 1.1 million shares were authorized to be issued, with 257 thousand shares under options having already been exercised under that plan since its inception. The 2003 Plan expired on February 13, 2013 and continues to exist only to administer outstanding options. Under the 2006 LTIP, 2.5 million shares were authorized to be issued, with 588 thousand shares under options having already been exercised and 708 thousand shares of restricted stock having already vested under the plan since its inception. At September 30, 2013, a balance of 21 thousand shares is available in the 2006 LTIP for future issuances. Under the 2011 LTIP, 1.5 million shares were authorized to be issued. As of September 30, 2013, 43 thousand shares of restricted stock have vested under the plan, leaving a balance of 247 thousand shares available in the 2011 LTIP for future issuances.

The Company issues share-based compensation awards with a vesting period ranging up to 3 years and a maximum contractual term of 10 years. The Company issues new shares of stock when stock options are exercised. As of September 30, 2013, there was $6.4 million of total unrecognized compensation cost related to non-vested share-based compensation awards granted under the Plans. That cost is expected to be recognized over a weighted average period of 2.7 years.

The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item:

	Three Months Ended September 30,
(In thousands)	2013		2012
Selling, general and administrative	$	809	$	546
Research and development	38		37
Cost of sales	50		73
Total	$	897	$	656

Tax benefit at statutory rate	$	102	$	23

Stock Options

The Company measures share-based compensation cost for options using the Black-Scholes option pricing model. The following table presents the weighted average assumptions used to estimate fair values of the stock options granted during the three months ended September 30 and the estimated annual forfeiture rates used to recognize the associated compensation expense:

	Stock Options FY 2014			Stock Options FY 2013
Risk-free interest rate	2.10		%	—		%
Expected volatility	62.9		%	—		%
Expected dividend yield	0.0		%	—		%
Forfeiture rate	7.5		%	—		%
Expected term (in years)	5.9 years			—
Weighted average fair value	$	8.09		$	—

Expected volatility is based on the historical volatility of the price of our common shares during the historical period equal to the expected term of the option. The Company uses historical information to estimate the expected term, which represents the period of time that options granted are expected to be outstanding. The risk-free rate for the period equal to the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The forfeiture rate assumption is the estimated annual rate at which unvested awards are expected to be forfeited during the vesting period. This assumption is based on our historical forfeiture rate. Periodically, management will assess whether it is necessary to adjust the estimated rate to reflect changes in actual forfeitures or changes in expectations. Additionally, the expected dividend yield is equal to zero, as the Company has not historically and has no immediate plans to issue a dividend.

A summary of stock option award activity under the Plans as of September 30, 2013 and changes during the three months then ended, is presented below:

							Weighted
			Weighted-				Average
			Average		Aggregate		Remaining
			Exercise		Intrinsic		Contractual
(In thousands, except for weighted average price and life data)	Awards		Price		Value		Life (yrs.)

Outstanding at July 1, 2013	2,319		$	5.71
Granted	767		$	13.89
Exercised	(127	)	$	6.38	$	1,449
Forfeited, expired or repurchased	(4	)	$	7.57
Outstanding at September 30, 2013	2,955		$	7.80	$	41,428	7.3

Vested and expected to vest at September 30, 2013	2,791		$	7.65	$	39,565	7.1
Exercisable at September 30, 2013	1,414		$	6.53	$	21,620	5.0

Restricted Stock

The Company measures restricted stock compensation costs based on the stock price at the grant date less an estimate for forfeitures. The annual forfeiture rate used to calculate compensation expense was 7.5% for the three months ended September 30, 2013 and 2012.

A summary of non-vested restricted stock awards as of September 30, 2013 and changes during the three months then ended, is presented below:

(In thousands)	Awards		Weighted Average Grant - date Fair Value		Aggregate Intrinsic Value

Non-vested at July 1, 2013	—		—
Granted	40		12.71
Vested	(40	)	12.71		$	508
Forfeited	—		—
Non-vested at September 30, 2013	—		$	—

Employee Stock Purchase Plan

In February 2003, the Company’s stockholders approved an Employee Stock Purchase Plan (“ESPP”). Employees eligible to participate in the ESPP may purchase shares of the Company’s stock at 85% of the lower of the fair market value of the common stock on the first day of the calendar quarter, or the last day of the calendar quarter. Under the ESPP, employees can authorize the Company to withhold up to 10% of their compensation during any quarterly offering period, subject to certain limitations. The ESPP was implemented on April 1, 2003 and is qualified under Section 423 of the Internal Revenue Code. The Board of Directors authorized an aggregate total of 1.1 million shares of the Company’s common stock for issuance under the ESPP. During the three months ended September 30, 2013 and 2012, 6 thousand shares and 32 thousand shares were issued under the ESPP, respectively. As of September 30, 2013, 415 thousand total cumulative shares have been issued under the ESPP.