Stock-based Compensation

The Company’s stock-based compensation plans are broad-based, long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests. At December 31, 2013, the Company had four stock option plans that reserved shares of common stock for issuance to executives and key employees: the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, the 2004 Long-Term Equity Incentive Plan (collectively, the “Prior Plans”) and the 2011 Omnibus Equity Incentive Plan (the “2011 Incentive Plan”). The 2011 Incentive Plan authorizes the Company to provide equity-based compensation in the form of: (1) stock options, including incentive stock options, entitling the optionee to favorable tax treatment under Section 422 of the Code; (2) stock appreciation rights; (3) restricted stock and restricted stock units; (4) other share-based awards; and, (5) performance awards. Options issued under these plans vest within one to three years and expire ten years from the grant date. The Company grants restricted stock units to members of the Board of Directors, the Chief Executive Officer and a limited group of executives. Once vested and settled, restricted stock units are converted into restricted stock and cannot be sold until 90 days after the Chief Executive Officer, the executive or the member of the Board of Directors, as applicable, resigns from his or her position, or until the individual achieves the targeted ownership under the Company’s stock ownership guidelines, and only to the extent that such ownership exceeds the target. This expense is being recognized over the respective vesting periods.

Historically, the Board of Directors of the Company has approved annual Long Term Incentive Plans (“LTIP”) which cover two year periods and are primarily based upon the achievement of an Adjusted EBITDA target for the two-year period. At the time of the award, the individual plans entitle the participants to receive cash or restricted stock units, or a combination of both as determined by the Company’s Board of Directors. The 2013/2014 LTIP and 2014/2015 LTIP also awarded restricted stock units which vest over the course of three years from the anniversary of the establishment of the plan and are not subject to a performance metric. The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and adjusts compensation expense to match expectations. Any related liability is reflected in the line item “Accrued expenses” on the Consolidated Balance Sheets and any restricted stock unit commitment is reflected in the line item “Additional paid-in capital” on the Consolidated Balance Sheets.

The compensation expense associated with stock-based compensation for the quarters ended December 31, 2013 and 2012 are recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):



	Quarter Ended December 31, 2013							Quarter Ended December 31, 2012
	Stock Options			Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	92		$	43	$	130	$	131	$	113	$	97
Selling, general and administrative expenses	67			200		126		129		335		200
Research and development	(19		)	—		50		23		—		32
	$	140		$	243	$	306	$	283	$	448	$	329

The compensation expense associated with stock-based compensation for the nine month periods ended December 31, 2013 and 2012 are recorded on the Condensed Consolidated Statements of Operations as follows (amounts in thousands):



	Nine Month Period Ended December 31, 2013						Nine Month Period Ended December 31, 2012
	Stock Options		Restricted Stock		LTIPs		Stock Options		Restricted Stock		LTIPs
Cost of sales	$	354	$	69	$	356	$	540	$	338	$	244
Selling, general and administrative expenses	351		505		509		626		1,089		534
Research and development	1		—		143		72		—		80
	$	706	$	574	$	1,008	$	1,238	$	1,427	$	858

In the “Operating activities” section of the Condensed Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to Net loss for the nine month periods ended December 31, 2013, and 2012. Approximately thirty-five thousand and twenty-six thousand stock options were exercised in the nine month periods ended December 31, 2013 and 2012, respectively.