Note 16. Share-based Compensation

At September 30, 2014, the Company had four share-based employee compensation plans (the “2003 Plan,” the 2006 Long-term Incentive Plan (“LTIP”), or “2006 LTIP”, the 2011 LTIP and the 2014 LTIP). Together these plans authorized an aggregate total of 8.1 million shares to be issued. The plans have a total of 2.5 million shares available 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, 2014, there was $13.2 million of total unrecognized compensation cost related to non-vested share-based compensation awards. That cost is expected to be recognized over a weighted average period of 2.5 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 three months ended September 30, 2014 and 2013 and the estimated annual forfeiture rates used to recognize the associated compensation expense:

	September 30, 2014		September 30, 2013
Risk-free interest rate	1.7	%	2.1	%
Expected volatility	52.1	%	62.9	%
Expected dividend yield	0.0	%	0.0	%
Forfeiture rate	6.5	%	7.5	%
Expected term (in years)	5.5 years		5.9 years
Weighted average fair value	$ 16.82		$ 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 actual forfeiture rate on historical awards. 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 as of September 30, 2014 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, 2014	2,205		$	7.84
Granted	432		$	34.79
Exercised	(67	)	$	7.59	$	2,120
Forfeited, expired or repurchased	(1	)	$	16.19
Outstanding at September 30, 2014	2,569		$	12.38	$	85,565	7.6

Vested and expected to vest at September 30, 2014	2,451		$	11.93	$	82,704	7.5
Exercisable at September 30, 2014	1,277		$	6.36	$	50,208	6.1

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 6.5% for the three months ended September 30, 2014 and 7.5% for the three months ended September 30, 2013.

A summary of restricted stock awards as of September 30, 2014 and changes during the three months then ended, is presented below:

(In thousands, except for weighted average price data)	Awards		Weighted Average Grant - date Fair Value		Aggregate Intrinsic Value

Non-vested at July 1, 2014	15		34.66
Granted	98		36.77
Vested	(9	)	36.77		$	345
Forfeited	(1	)	36.77
Non-vested at September 30, 2014	103		$	36.47

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, 2014 and 2013, 3 thousand shares and 6 thousand shares were issued under the ESPP, respectively. As of September 30, 2014, 429 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:

	Three Months Ended September 30,
(In thousands)	2014		2013
Selling, general and administrative	$	1,359	$	809
Research and development	120		38
Cost of sales	168		50
Total	$	1,647	$	897

Tax benefit at statutory rate	$	570	$	102