Share-Based Awards

Employee Stock Option Plans

In September 1998, the Company’s shareholders approved a stock option plan (the “1998 Plan”) under which 8,000,000 shares of common stock were reserved for the issuance of options. The 1998 Plan provides that employees, directors and consultants of the Company may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted options to purchase shares of common stock. The exercise price of each option granted was determined by the Board of Directors at the date of grant, and options under the 1998 Plan expire no later than 10 years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Certain option grants to directors became exercisable three months from the date of grant. Upon an acquisition of the Company by merger or asset sale, each outstanding option may be subject to accelerated vesting under certain circumstances. The 1998 Plan terminated on December 31, 2007. As of September 30, 2013, there were 20,000 outstanding options related to the 1998 Plan.

In October 2005, the Company’s shareholders approved a stock option and incentive plan (the “2005 Plan”) under which 4,800,000 shares of common stock were reserved for the issuance of awards, including stock options, incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, performance shares, performance units (including performance options) and other share-based awards. The 2005 Plan provides that employees, directors and consultants of the Company may, at the discretion of the Board of Directors or a duly designated compensation committee, be granted awards to acquire shares of common stock. The exercise price of each option award shall be determined by the Board of Directors at the date of grant in accordance with the terms of the 2005 Plan, and under the 2005 Plan awards expire no later than 10 years from the grant date. Options granted will generally become exercisable in accordance with the terms of the agreement pursuant to which they were granted. Upon an acquisition of the Company by merger or asset sale, each outstanding option may be subject to accelerated vesting under certain circumstances. The 2005 Plan terminates on May 25, 2015, unless terminated earlier by the Board of Directors. As of September 30, 2013, there were 1,397,409 outstanding options and 2,617,727 shares available for future grant related to the 2005 Plan.

A summary of stock option transactions during the six months ended September 30, 2013 follows:



	Number of Shares		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in thousands)
Outstanding, April 1, 2013	1,159,183		$	30.54	5.5
Granted	469,000		18.76		7.7
Exercised	(79,214	)	19.38		0.1	$	186
Forfeited/Canceled	(131,560	)	31.68		5.4
Outstanding, September 30, 2013	1,417,409		$	27.59	6.2	$	1,562
Vested and expected to vest, September 30, 2013	1,329,729		$	27.68	6.2	$	1,435
Exercisable, September 30, 2013	364,669		$	31.46	4.5	$	33

The Company utilizes the Black-Scholes valuation model for estimating the fair value of share-based compensation with the following assumptions:



	Six Months Ended September 30, 2013	Six Months Ended September 30, 2012
Expected life	4.9 years	5.0 years
Expected volatility	43.4% - 43.7%	41.3% - 45.0%
Expected dividends	3.1% - 3.9%	2.4% - 3.8%
Risk-free rate	1.0% - 1.5%	0.7% - 0.8%

The weighted-average grant date fair value of stock options granted during the six months ended September 30, 2013 and 2012 was $5.19 and $8.41 per share, respectively.

The Company issues new shares to satisfy option exercises. Based on historical experience of option cancellations, the Company has estimated an annualized forfeiture rate of 8.3% and 5.8% for employee options for the six months ended September 30, 2013 and 2012, respectively, and 0.0% for director options for the six months ended September 30, 2013 and 2012. Forfeiture rates are adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

During the six months ended September 30, 2013, a total of 469,000 options to purchase shares of common stock were granted under the 2005 Plan at an exercise price equal to the market price of the Company’s common stock on the date of grant. A summary of stock options granted under the 2005 Plan during fiscal years 2014 and 2013 is as follows:



	Number of			Vesting
Option Grant Date	Shares	Exercise Price		Terms (1)	Expires
August 15, 2013	85,000	$	20.85	Five years	August 15, 2021
July 30, 2013	28,000	$	22.59	Five years	July 30, 2021
May 29, 2013	356,000	$	17.95	Five years	May 29, 2021
Fiscal year 2014 option grants	469,000
January 23, 2013	40,000	$	19.00	Five years	January 23, 2021
November 5, 2012	5,000	$	17.68	Five years	November 5, 2020
September 25, 2012	20,000	$	18.42	Five years	September 25, 2020
May 24, 2012	346,000	$	29.17	Five years	May 24, 2020
May 24, 2012	30,000	$	29.17	Four years	May 24, 2020
May 23, 2012	115,500	$	29.45	Five years	May 23, 2020
Fiscal year 2013 option grants	556,500

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(1) Options vest in equal annual installments on each grant anniversary date commencing one year following the date of grant.

Performance-Based Awards

On May 22, 2013, the Board of Directors approved its fiscal year 2014 equity incentive program for certain employees to be awarded options to purchase the Company’s common stock. The maximum number of options available under the equity incentive program plan is 600,000, of which 210,000 are reserved for the Company’s named executive officers and 390,000 for non-executive employees of the Company. Under the program, executive officers are eligible to receive cash bonuses and options based on meeting certain target increases in revenue, EPS and operating income growth for fiscal year 2014. Under the program, non-executive employees are eligible to receive options based on meeting certain target increases in revenue and EPS growth for fiscal year 2014 and the recommendations of senior management. The options shall be issued pursuant to the 2005 Plan, have an exercise price equal to the closing price of the Company’s shares on the date of grant, a term of eight years and vesting in five equal annual installments commencing one year following the date of grant.

Compensation expense associated with the performance based awards under the Company’s equity incentive plans are initially based on the number of options expected to vest after assessing the probability that certain performance criteria will be met. Cumulative adjustments are recorded quarterly to reflect subsequent changes in the estimated outcome of performance-related conditions. The Company utilized the Black-Scholes option valuation model with the assumptions below to calculate stock compensation expense related to the performance based awards. Stock compensation expense recorded for these awards was not significant for the six months ended September 30, 2013 and 2012, respectively.



	Six Months Ended September 30, 2013	Six Months Ended September 30, 2012
Expected life	4.9 years	5.0 years
Expected volatility	41.0% - 43.5%	41.7% - 45.0%
Expected dividends	3.2% - 3.7%	2.5% - 3.8%
Risk-free rate	1.4%	0.6% - 0.7%

Non-vested stock option award activity, including employee stock options and performance-based awards, during the six months ended September 30, 2013 is summarized as follows:



	Non-Vested Number of Shares		Weighted- Average Grant-Date Fair Value per Share
Outstanding, April 1, 2013	804,340		$	9.89
Granted	469,000		5.19
Vested	(89,040	)	10.08
Forfeited/Canceled	(131,560	)	9.84
Outstanding, September 30, 2013	1,052,740		$	7.77

As of September 30, 2013, $6,511 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted-average period of 3.8 years. This amount does not include the cost of new options that may be granted in future periods or any changes in the Company’s forfeiture percentage. The total fair value of options vested during the six months ended September 30, 2013 and 2012 was $897 and $1,270, respectively.

Restricted Stock

On May 22, 2013, the Board of Directors approved its 2014 Director Compensation Program, pursuant to which each non-employee director is to be awarded shares of restricted stock upon election or re-election to the Board of Directors. Additionally, as part of the 2014 equity incentive program, each executive officer received, as a component of his or her base salary, a grant of restricted stock. The shares of restricted stock are awarded under the 2005 Plan. Such shares of restricted stock vest in two equal, annual installments on the first and second anniversaries of the grant date and are nontransferable for one year following vesting. The weighted-average grant date fair value for the restricted stock was estimated using the market price of the common stock on the date of grant. The fair value of the restricted stock is amortized on a straight-line basis over the vesting period.

The Company recorded compensation expense related to restricted stock of approximately $289 and $324 for the six months ended September 30, 2013 and 2012, respectively. Restricted stock activity for the six months ended September 30, 2013 is summarized as follows:



	Number of Shares		Weighted- Average Grant-Date Fair Value per Share
Outstanding, April 1, 2013	30,385		$	27.09
Granted	57,324		20.75
Vested	(15,635	)	30.38
Canceled	(3,000	)	24.81
Outstanding, September 30, 2013	69,074		$	20.93

As of September 30, 2013, $1,294 of total unrecognized compensation costs related to restricted stock is expected to be recognized over a weighted-average period of 1.8 years. This amount does not include the cost of new restricted stock that may be granted in future periods.