Note 17. Share-based Compensation

At December 31, 2013, the Company had four share-based employee compensation plans (the “Old Plan,” the “2003 Plan,” the 2006 Long-term Incentive Plan (“LTIP”), or “2006 LTIP” and the 2011 LTIP). Additionally, during January 2014, the stockholders of the Company approved a new stock award plan, the 2014 LTIP, which authorized 3.0 million new shares of common stock for future issuances under this plan.

At December 31, 2013, there were 2.8 million options outstanding. Of those, 1.1 million were options issued under the 2006 LTIP, 454 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 273 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 634 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 December 31, 2013, a balance of 23 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 December 31, 2013, 183 thousand shares of unvested restricted stock were outstanding and an additional 54 thousand shares of restricted stock have vested under the plan, leaving a balance of 55 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 December 31, 2013, there was $9.0 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 1.8 years.

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 six months ended December 31 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	2.1		%	1.0		%
Expected volatility	62.9		%	61.5		%
Expected dividend yield	0.0		%	0.0		%
Forfeiture rate	7.5		%	7.5		%
Expected term (in years)	5.9 years			6.1 years
Weighted average fair value	$	8.09		$	2.36

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 issued, and has no immediate plans to issue, a dividend.

A summary of stock option award activity under the Plans as of December 31, 2013 and changes during the six months then ended, is presented below:

(In thousands, except for weighted average price and life data)	Awards		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (yrs.)
Outstanding at July 1, 2013	2,319		$	5.71
Granted	767		$	13.89
Exercised	(202	)	$	5.47	$	3,278
Forfeited, expired or repurchased	(98	)	$	16.66
Outstanding at December 31, 2013	2,786		$	7.59	$	71,064	7.2

Vested and expected to vest at December 31, 2013	2,647		$	7.43	$	67,955	7.1
Exercisable at December 31, 2013	1,415		$	5.69	$	38,783	5.5

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 six months ended December 31, 2013 and 2012.

A summary of non-vested restricted stock awards as of December 31, 2013 and changes during the six 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	234		22.47
Vested	(51	)	15.29		$	784
Forfeited	—		—
Non-vested at December 31, 2013	183		$	24.48

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 six months ended December 31, 2013 and 2012, 10 thousand shares and 46 thousand shares were issued under the ESPP, respectively. As of December 31, 2013, 419 thousand total cumulative shares have been issued under the ESPP.

The following table presents the allocation of share-based compensation costs recognized in the Consolidated Statements of Operations by financial statement line item for the three and six months ended December 31, 2013 and 2012:

	Three Months Ended				Six Months Ended
	December 31,				December 31,
(In thousands)	2013		2012		2013		2012
Selling, general and administrative	$	1,714	$	227	$	2,523	$	774
Research and development	180		15		218		52
Cost of sales	253		40		303		114
Total	2,147		282		3,044		940

Tax benefit at statutory rate	$	241	$	34	$	343	$	57