Stock-Based Compensation

6 Months Ended

Sep. 30, 2013

2. Stock-Based Compensation

The Company accounts for its stock-based compensation at fair value. The following table summarizes stock-based compensation expense by financial statement line item for the three and six months ended September 30, 2013 and 2012 (in thousands):

	Three months ended September 30,					Six months ended September 30,
	2013		2012			2013			2012
Cost of revenues	$	224	$	213	$		429	$		383
Research and development		585		591			1,159			1,154
Selling, general and administrative		1,343		1,240			2,699			2,502
Total	$	2,152	$	2,044	$		4,287	$		4,039

During the six months ended September 30, 2013, the Company granted approximately 831,000 stock options, 400,000 restricted stock awards, 362,000 shares of performance-based restricted stock awards and issued 212,000 shares of common stock in-lieu of cash bonuses and severance payments to employees under the 2007 Stock Incentive Plan. The shares issued in-lieu of cash bonuses vest immediately. The shares issued in lieu of severance vested on the eighth day after receipt of an irrevocable release. The options and restricted stock awards granted vest upon the passage of time, generally 3 years. For options and awards that vest upon the passage of time, expense is being recorded over the vesting period. Performance-based restricted stock awards are expensed over the requisite service period.

The estimated fair value of the Company’s stock-based awards, less expected annual forfeitures, is amortized over the awards’ service period. The total unrecognized compensation cost for unvested outstanding stock options was $3.2 million at September 30, 2013. This expense will be recognized over a weighted average expense period of approximately 2.0 years. The total unrecognized compensation cost for unvested outstanding restricted stock was $4.6 million at September 30, 2013. This expense will be recognized over a weighted-average expense period of approximately 1.3 years.

The weighted-average assumptions used in the Black-Scholes valuation model for stock options granted during the three and six months ended September 30, 2013 and 2012 are as follows:

	Three months ended September 30,						Six months ended September 30,
	2013			2012			2013			2012
Expected volatility		75.4	%		71.9	%		75.1	%		71.9	%
Risk-free interest rate		1.7	%		0.8	%		1.7	%		0.9	%
Expected life (years)		5.8			5.9			5.9			5.9
Dividend yield		None			None			None			None

The expected volatility rate was estimated based on an equal weighting of the historical volatility of the Company’s common stock and the implied volatility of the Company’s traded options. The expected term was estimated based on an analysis of the Company’s historical experience of exercise, cancellation, and expiration patterns. The risk-free interest rate is based on the average of the five and seven year United States Treasury rates.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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