7. Share Tracking Award Plans

We maintain the United Therapeutics Corporation Share Tracking Awards Plan, adopted in June 2008 (2008 STAP) and the United Therapeutics Corporation 2011 Share Tracking Awards Plan, adopted in March 2011 (2011 STAP). In 2012, we amended the 2008 STAP to prohibit future grants from the plan. Since both plans otherwise contain similar terms and conditions, we refer to these plans collectively as the "STAP" and awards granted and/or outstanding under either of these plans as "STAP Awards." STAP Awards convey the right to receive in cash an amount equal to the appreciation of our common stock, which is calculated as the positive difference between the closing price of our common stock on the date of exercise and the date of grant. Awards generally vest in equal increments on each anniversary of the date of grant over a four-year period and expire ten years from the grant date. The aggregate balance of the STAP liability at December 31, 2013 was $305.2 million, of which $17.2 million has been classified as long term under the caption "Other Liabilities" as these STAP Awards will vest in excess of one year. At December 31, 2013, 1.0 million STAP awards remained available for grant under the 2011 STAP. On January 30, 2014 our Board of Directors approved an additional 3.0 million increase in the number of available STAP awards under the 2011 STAP.

We estimate the fair value of STAP awards using the Black-Scholes-Merton valuation model. In estimating the fair value of STAP awards, we are required to use inputs that can materially impact the determination of fair value and the amount of compensation expense (benefit) to be recognized. These inputs include the price of our common stock, the expected volatility of the price of our common stock, the risk-free interest rate, the expected term of STAP awards, the expected forfeiture rate and the expected dividend yield.

A description of the key inputs, requiring estimates, used in determining the fair value of the awards is provided below:

Expected volatility—Volatility is a measure of the amount the price of our common stock has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. We use historical volatility based on weekly price observations of our common stock during the period immediately preceding an award that is equal to its expected term up to a maximum period of five years. We believe the volatility in the price of our common stock over the preceding five years generally provides a reliable projection of future long-term volatility.

Risk-free interest rate—The risk-free interest rate is the average interest rate consistent with the yield available on a U.S. Treasury note with a term equal to the expected term of an award.

Expected term of awards—An award's expected term reflects the estimated time period we expect an award to remain outstanding. We apply the simplified method to develop an estimate of the expected term.

Expected forfeiture rate—The expected forfeiture rate is an estimated percentage of awards granted that are expected to be forfeited or canceled on an annual basis prior to becoming fully vested. We derive our estimate based on historical forfeiture experience for similar classes of employees.

Expected dividend yield—We do not pay cash dividends on our common stock and do not expect to do so in the future. Therefore, the dividend yield is zero.

The table below presents the assumptions used to measure the fair value of STAP Awards

	As of December 31, 2013

	2013			2012			2011
Expected volatility		32.7	%		32.8	%		38.0	%
Risk-free interest rate		1.1	%		0.5	%		0.5	%
Expected term of awards (in years)		3.9			3.7			3.9
Expected forfeiture rate		10.1	%		8.7	%		7.0	%
Expected dividend yield		0.0	%		0.0	%		0.0	%

A summary of the status and activity of the STAP is presented below:

			Weighted- Average Exercise Price			Aggregate Intrinsic Value (in 000s)

Outstanding at January 1, 2013	7,962,375		$	49.00
Granted	3,372,994			57.55
Exercised	(2,049,136	)		43.55
Forfeited	(551,332	)		62.16


Outstanding at December 31, 2013	8,734,901		$	52.75	7.7	$	526,976




Exercisable at December 31, 2013	3,277,377		$	47.50	6.2	$	214,929




Expected to vest at December 31, 2013	4,895,737		$	55.95	8.5	$	279,704

The weighted average grant date fair value of STAP awards granted during the years ended December 31, 2013, 2012 and 2011 was $24.78, $21.28 and $27.80, respectively.

Share-based compensation expense (benefit) recognized in connection with the STAP is as follows (in thousands):

	Year Ended December 31,

	2013			2012			2011
Research and development	$	134,355		$	11,130		$	(8,190	)
Selling, general and administrative		143,407			14,490			(8,023	)
Cost of product sales		6,124			1,230			(174	)


Share-based compensation expense (benefit) before taxes		283,886			26,850			(16,387	)
Related income tax (benefit) expense		(106,693	)		(9,902	)		6,058


Share-based compensation expense (benefit), net of taxes	$	177,193		$	16,948		$	(10,329	)




Share-based compensation capitalized as part of inventory	$	1,593		$	275		$	(203	)

Cash paid to settle STAP exercises during the years ended December 31, 2013, 2012 and 2011 was $55.9 million, $31.8 million, and $28.7 million, respectively.