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Stock-Based Compensation
 9 Months Ended
Dec. 31, 2012
Stock-Based Compensation  
Stock-Based Compensation

Note 5 - Stock-Based Compensation

 

Stock-based compensation costs for award grants to employees and directors are valued at fair value and recognized on a straight line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. We estimate forfeiture rates based on historical experience. Amounts recognized in the condensed financial statements related to stock-based compensation are as follows (in thousands, except per share data):

 

 

 

Three months ended
December 31,

 

Nine months ended
December 31,

 

 

 

2012

 

2011

 

2012

 

2011

 

Total cost of stock-based compensation charged against income before income taxes

 

$

459

 

$

157

 

$

897

 

$

349

 

Amount of income tax benefit recognized in earnings

 

163

 

57

 

314

 

127

 

Amount charged against net income

 

$

296

 

$

100

 

$

583

 

$

222

 

Impact on net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

$

0.03

 

$

0.17

 

$

0.07

 

Diluted

 

0.08

 

0.03

 

0.17

 

0.06

 

 

Stock-based compensation expense is included in cost of revenues and general and administrative expense in the accompanying condensed statements of income.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model (“Black-Scholes”). We use historical data to estimate the expected price volatility, the expected option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the option. The dividend yield is calculated based upon the dividend payments made during the prior four quarters as a percent of the average stock price for that period. The following summarizes the Black-Scholes assumptions used for option grants:

 

 

 

Nine months ended December 31,

 

 

 

2012

 

2011

 

Volatility

 

29.3%

 

33.5%

 

Risk-free interest rate

 

0.6-1.0%

 

0.9-2.2%

 

Expected option life (years)

 

5-10

 

5-10

 

Dividend yield

 

1.4%

 

1.8%

 

 

The following is a summary of option activity:

 

 

 

Number of
Shares

 

Weighted-
average
Exercise Price
per Share

 

Weighted-
average
Remaining
Contractual
Term

 

Aggregate
Intrinsic Value
(000s)

 

Outstanding at March 31, 2012

 

433,785

 

$

22.77

 

3.9

 

 

 

Options granted

 

116,080

 

50.01

 

6.0

 

 

 

Options forfeited

 

(36,110

)

33.04

 

 

 

 

 

Options expired

 

(40

)

18.98

 

 

 

 

 

Options exercised

 

(63,375

)

20.17

 

 

 

 

 

Outstanding at December 31, 2012

 

450,340

 

29.33

 

 

 

$

9,392

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2012

 

180,925

 

21.30

 

3.0

 

5,212

 

 

We issue new shares of common stock upon exercise of stock options.  The total intrinsic value of options exercised was $1,800,000 and $738,000 for the nine months ended December 31, 2012 and 2011, respectively.

 

A summary of the status of our unvested option shares as of December 31, 2012 is as follows:

 

 

 

Number of
Shares

 

Weighted-
average
Grant-Date
Fair Value

 

Unvested at March 31, 2012

 

284,875

 

$

7.23

 

Options granted

 

116,080

 

12.45

 

Options forfeited

 

(36,110

)

8.97

 

Options vested

 

(95,430

)

6.80

 

Unvested at December 31, 2012

 

269,415

 

9.40

 

 

As of December 31, 2012, there was approximately $2,084,000 of total unrecognized compensation cost related to unvested stock options granted under our plans, which is expected to be recognized over a weighted-average period of 3 years.

 

Effective November 30, 2012, as part of our Chief Financial Officer transition, 14,400 unvested options were modified to a) extend the expiration date to 10 years following the original grant date, b) allow them to be exercised through their expiration date, and c) accelerate the vesting such that all options will vest by November 30, 2014.  This is a modification of the terms of an equity award and, accordingly, we have treated this as an exchange of the original award for a new award.  We recorded incremental compensation expense of approximately $240,000 during the three and nine months ended December 31, 2012, included in general and administrative expense on the accompanying condensed statements of income.