STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation activity using the modified prospective method. This method requires companies to estimate the fair value of stock-based compensation on the date of grant using an option-pricing model. The Company uses the Black-Scholes model to value stock-based compensation for options and ESPP, and the fair market value of the Company's common stock for RSUs. The MSUs were valued using the Monte Carlo pricing model, which uses the Company's stock price, the Index value, expected volatilities of the Company's stock price and the Index, correlation coefficients and risk free interest rates to determine the fair value. The Black-Scholes model determines the fair value of share-based payment awards based on the stock price on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s stock price, volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Although the fair value of stock options granted by the Company is estimated by the Black-Scholes model, the estimated fair value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

The Company did not grant options or employee stock purchase rights during the three months ended December 31, 2013 and 2012. The fair value of the options and employee stock purchase rights granted during the nine months ended December 31, 2013 and 2012 is estimated as of the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Nine Months Ended December 31,
	Employee Stock Options						ESPP
	2013			2012			2013			2012
Expected life (years)	4.4			4.5			0.5			0.5
Risk-free interest rate	0.6		%	0.7		%	0.1		%	0.2		%
Volatility	49		%	54		%	57		%	50		%
Dividend yield	—		%	—		%	—		%	—		%
Weighted average fair value	$	2.95		$	2.47		$	3.67		$	1.50

The weighted average grant-date fair value per share of the restricted stock units awarded was $9.84 and $8.57 during the three and nine months ended December 31, 2013, respectively, compared to $6.13 and $5.71 during the three and nine months ended December 31, 2012, respectively. The weighted average fair value per share was calculated based on the fair market value of the Company’s common stock on the respective grant dates.

Effective April 1, 2013, the Company revised its estimated forfeiture rate used in determining the amount of stock-based compensation from 6.6% to 6.7% as a result of an increased rate of forfeitures in recent periods, which the Company believes is indicative of the rate it will experience during the remaining vesting period of currently outstanding unvested grants.

The following table summarizes stock-based compensation expense related to stock options and RSUs (in thousands):



	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013			2012
Stock-based compensation expense by type of award
Stock options	$	648	$	935	$	1,987		$	3,024
Restricted stock units	5,231		5,276		11,454			18,427
Total stock-based compensation	5,879		6,211		13,441			21,451
Stock-based compensation (capitalized to) expensed from inventory	3		11		(11		)	94
Total stock-based compensation expense	$	5,882	$	6,222	$	13,430		$	21,545

The following table summarizes stock-based compensation expense as it relates to the Company’s Condensed Consolidated Statement of Operations (in thousands):



	Three Months Ended				Nine Months Ended
	December 31,				December 31,
	2013		2012		2013			2012
Stock-based compensation expense by cost centers
Cost of revenues	$	118	$	147	$	353		$	502
Research and development	1,545		2,814		4,867			10,733
Selling, general and administrative	4,216		3,250		8,221			10,216
Total stock-based compensation	$	5,879	$	6,211	$	13,441		$	21,451
Stock-based compensation (capitalized to) expensed from inventory	3		11		(11		)	94
Total stock-based compensation expense	$	5,882	$	6,222	$	13,430		$	21,545

The amount of unrecognized stock-based compensation cost estimated to be expensed from December 31, 2013 through fiscal 2018, including time and performance based awards that are expected to vest, is $21.7 million which will be recognized over a weighted-average period of 1.6 years. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional equity awards or assumes unvested equity awards in connection with acquisitions.

The stock based compensation expense of approximately $21.5 million for the nine months ended December 31, 2012 does not include approximately $1.3 million of expense related to the acceleration of Veloce warrants. See Note 4, Veloce, to the Condensed Consolidated Financial Statements for further details relating to the Veloce warrants.