Stock Options and Stock-Based Compensation

12 Months Ended

Mar. 31, 2013

Stock Options and Stock-Based Compensation [Abstract]

Stock Options and Stock-Based Compensation

Note B — Stock Options and Stock-Based Compensation

Under the Company’s Restated Omnibus Incentive Plan (Formerly The Restated 1988 Executive Stock Option Plan) (“the Plan”) as in effect at March 31, 2013, options for up to 9,682,500 shares of the Company’s common stock may be granted over the life of the Plan to key employees, non-employee directors and consultants at exercise prices not less than the fair market value of the stock at the date of grant. Options granted under the Plan are non-statutory stock options and generally vest 25% one year from date of grant and the remaining 75% vesting ratably each month for the next 36 months. The options granted to employees and the board of directors expire at the end of five years and ten years from date of grant, respectively.

The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model with the assumptions included in the table below. The Company uses historical data among other factors to estimate the expected volatility, the expected option life, and the expected forfeiture rate. The risk-free rate is based on the interest rate paid on a U.S. Treasury issue with a term similar to the estimated life of the option. During fiscal 2013, based upon the historical experience of option cancellations, the Company has an estimated annualized forfeiture rate of 12.8%. Forfeiture rates will be adjusted over the requisite service period when actual forfeitures differ, or are expected to differ, from the estimate.

The fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for fiscal years ended March 31, 2011, 2012 and 2013:

	Fiscal 2011	Fiscal 2012	Fiscal 2013
Expected volatility	46% to 47%	46% to 47%	47%
Risk free interest rate	1.5% to 2.2%	0.7% to 1.9%	0.6% to 0.8%
Dividend yield	0.0%	0.0%	0.0%
Weighted average option life	4.8 to 5.0 years	4.6 to 5.0 years	4.5 years

For the fiscal years ended March 31, 2011, 2012 and 2013, the Company recorded share-based compensation expense of $2,544,000, $2,276,000, and $997,000, respectively. The table below shows the amounts recognized in the financial statements for the fiscal years ended March 31, 2011, 2012 and 2013.

	Fiscal 2011		Fiscal 2012		Fiscal 2013
Cost of revenue	$	608,000	$	484,000	$	461,000
General and administrative		1,936,000		1,792,000		536,000
Total cost of stock-based compensation included in income before income tax		2,544,000		2,276,000		997,000
Amount of income tax benefit recognized		986,000		897,000		395,000
Amount charged to net income	$	1,558,000	$	1,379,000	$	602,000
Effect on basic earnings per share	$	0.13	$	0.12	$	0.05
Effect on diluted earnings per share	$	0.13	$	0.12	$	0.05

All options granted in the three fiscal years ended March 31, 2011, 2012, and 2013 were granted at fair value and are non-statutory stock options. Summarized information for all stock options for the past three fiscal years follows:

	Fiscal 2011			Fiscal 2012			Fiscal 2013
Options outstanding — beginning of the year		1,065,403			813,662			751,023
Options granted		207,325			149,075			123,100
Options exercised		(371,057	)		(173,064	)		(174,045	)
Options cancelled/forfeited		(88,009	)		(38,650	)		(149,602	)
Options outstanding — end of year		813,662			751,023			550,476
During the year, weighted average exercise price of:
Options granted	$	42.40		$	50.43		$	46.08
Options exercised	$	20.16		$	25.00		$	25.59
Options forfeited	$	17.53		$	34.09		$	42.52
At the end of the year:
Price range of outstanding options	$	11.00-$47.70		$	15.50-$52.76		$	15.55-$52.76
Weighted average exercise price per share	$	29.26		$	34.19		$	37.31
Options available for future grants		726,410			616,026			642,528
Exercisable options		374,141			388,154			278,962

The following table summarizes the status of stock options outstanding and exercisable at March 31, 2013:

Range of Exercise Prices	Number of Outstanding Options		Weighted Average Remaining Contractual Life		Outstanding Options – Weighted Average Exercise Price		Exercisable Options – Number of Exercisable Options		Exercisable Options – Weighted Average Exercise Price
$15.55 to $26.85		132,822		2.50	$	20.92		121,623	$	20.72
$26.86 to $40.16		148,000		2.71		33.67		117,870		32.77
$40.17 to $46.70		138,981		4.69		44.66		28,292		45.42
$46.71 to $52.76		130,673		4.18		50.28		11,177		50.55
Total		550,476		3.51	$	37.31		278,962	$	29.51

A summary of the status for all outstanding options at March 31, 2013, and changes during the fiscal year then ended is presented in the table below:

	Number of Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of March 31, 2013
Options outstanding, March 31, 2012		751,023		$	34.19
Granted		123,100			46.08
Exercised		(174,045	)		25.59
Cancelled — forfeited		(77,909	)		42.54
Cancelled — expired		(71,693	)		42.49
Options outstanding, March 31, 2013		550,476		$	37.31		3.51	$	6,871,264
Options vested and expected to vest		488,743		$	36.00		3.35	$	6,722,829
Ending exercisable		278,962		$	29.51		2.64	$	5,585,463

The weighted average fair value of options granted during fiscal 2011, 2012, and 2013 was $17.41, $20.68, and $18.60, respectively. The total intrinsic value of options exercised during fiscal years 2011, 2012, and 2013 were $9,173,000, $4,148,000, and $3,388,000 respectively.

Included in the above-noted stock option grants and stock compensation expense are performance-based stock options pursuant to which vesting occurs only upon the Company achieving certain revenue or earnings per share targets as determined by the Company’s board of directors. The options were valued in the same manner as the time-vesting options. However, the Company only recognizes stock compensation to the extent that the targets are probable which allow the performance options to vest. During fiscal years ended March 31, 2011, 2012 and 2013, the Company recognized stock compensation expense for performance-based options in the amount of $1,144,000, $1,002,000, and ($82,000), respectively.

The Company received $4,728,000, $2,241,000, and $3,399,000 of cash receipts from the exercise of stock options during fiscal 2011, 2012, and 2013, respectively. Vested options at March 31, 2013 were 278,962. Unvested options at March 31, 2013 were 271,514. As of March 31, 2013, $2,147,000 of total unrecognized compensation costs related to stock options is expected to be recognized over a weighted average period of 3.2 years.