STOCK-BASED COMPENSATION

Stock-based compensation expense consists primarily of expenses for stock options and restricted stock units granted to employees and shares issued under the ESPP. The following table summarizes stock-based compensation expense (in thousands):



	Year ended December 31,
	2013		2012		2011
Employee stock-based compensation in:
Cost of revenue	$	2,411	$	2,828	$	2,912
Research and development expense	4,431		6,151		6,618
Selling, general and administrative expense	9,160		9,449		10,798
Total stock-based compensation in operating expense	13,591		15,600		17,416
Total employee stock-based compensation recognized in income (loss) from continuing operations	$	16,002	$	18,428	$	20,328

Stock Options

The Company estimated the fair value of all employee stock options using a Black-Scholes valuation model with the following weighted average assumptions:



	Employee Stock Options
	2013		2012		2011
Expected term (in years)	4.70		4.70		4.75
Volatility	50	%	56	%	55	%
Risk-free interest rate	0.9	%	0.9	%	1.8	%
Dividend yield	0.0	%	0.0	%	0.0	%

The expected term represents the weighted-average period that the stock options are expected to remain outstanding. The computation of expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility. The risk-free interest rate that the Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

The weighted-average fair value per share of options granted for the years ended December 31, 2013, 2012 and 2011 was $2.55, $2.64 and $4.20, respectively. The fair value of all stock options vested during the years ended December 31, 2013, 2012 and 2011 was $3.3 million, $4.7 million and $7.1 million, respectively.

The total realized tax benefit attributable to stock options exercised during the years ended December 31, 2013, 2012 and 2011, in jurisdictions where this expense is deductible for tax purposes, was $0.1 million, $0.1 million and $2.0 million, respectively.

Restricted Stock Units

The estimated fair value of restricted stock units is based on the market price of the Company’s common stock on the grant date. The fair value of all restricted stock units issued during the years ended December 31, 2013, 2012 and 2011 was $11.9 million, $12.3 million and $10.5 million, respectively.

Employee Stock Purchase Plan

The value of the stock purchase right under the ESPP consists of (1) the 15% discount on the purchase of the stock, (2) 85% of the fair value of the call option, and (3) 15% of the fair value of the put option. The call option and put option were valued using the Black-Scholes option pricing model with the following assumptions:



	Employee Stock Purchase Plan
	2013		2012		2011
Expected term (in years)	0.50		0.50		0.50
Volatility	31	%	49	%	45	%
Risk-free interest rate	0.2	%	0.2	%	0.2	%
Dividend yield	0.0	%	0.0	%	0.0	%

The expected term represents the period of time from the beginning of the offering period to the purchase date. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility. The risk-free interest rate that the Company uses in the Black-Scholes option valuation model is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.

The weighted-average fair value per share of stock purchase rights granted for the years ended December 31, 2013, 2012 and 2011 was $1.21, $1.33 and $2.15, respectively.

Unrecognized Stock-Based Compensation

As of December 31, 2013, total unamortized stock-based compensation cost related to unvested stock options and restricted stock units was $18.1 million. This amount will be recognized as expense using the straight-line attribution method over the remaining weighted-average amortization period of 1.8 years.