Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

NOTE 14: STOCK-BASED COMPENSATION

The following table summarizes stock-based compensation costs in our Consolidated Statements of Operations for the years ended December 31, 2011, 2010 and 2009 (in thousands):

	Year ended December 31,
	2011		2010		2009
Cost of revenue	$	3,075	$	2,197	$	1,517
Research and development		6,926		5,013		3,846
Selling, general and administrative		10,912		8,329		5,215
Total stock-based compensation recognized in income (loss)		20,913		15,539		10,578
Amount capitalized in inventory		—		10		19
Total stock-based compensation expense	$	20,913	$	15,549	$	10,597

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:

	Year ended December 31,
	2011			2010			2009
Expected term		4.75			4.75			4.75
Volatility		55	%		56	%		60	%
Risk-free interest rate		1.8	%		2.4	%		1.7	%
Expected dividends		0.0	%		0.0	%		0.0	%

Expected term. The expected term represents the weighted-average period that the stock options are expected to remain outstanding. Our 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.

Volatility. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility.

Risk-free interest rate. The risk-free 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.

Expected dividends. 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 record 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 Company’s estimated forfeiture rate was 6%, 5% and 5% for the years ended December 31, 2011, 2010 and 2009, respectively.

The weighted-average fair value of options granted for the years ended December 31, 2011, 2010 and 2009 was $4.20, $3.09 and $2.88 per share, respectively.

The fair value of all stock options vested during the year ended December 31, 2011 was $ 7.1 million.

The total realized tax benefit attributable to stock options exercised during the years ended December 31, 2011 and 2010, in jurisdictions where this expense is deductible for tax purposes, was $2.0 million and $0.3 million, respectively. There was no such realized tax benefit in the year ended December 31, 2009.

Restricted Stock Units

The fair value of RSUs is equal to the fair value of the Company’s common stock on the date of grant.

The fair value of all restricted stock units issued during the year ended December 31, 2011 was $ 10.5 million.

Employee Stock Purchase Plan

The value of the stock purchase right 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:

	Year ended December 31,
	2011			2010			2009
Expected term		0.50			0.50			0.50
Volatility		45	%		46	%		76	%
Risk-free interest rate		0.2	%		0.4	%		0.5	%
Expected dividends		0.0	%		0.0	%		0.0	%

Expected term. The expected term represents the period of time from the beginning of the offering period to the purchase date.

Volatility. The Company uses its historical volatility for a period equivalent to the expected term of the options to estimate the expected volatility.

Risk-free interest rate. The risk-free 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.

Expected dividends. 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 of stock purchase rights granted for the years ended December 31, 2011, 2010 and 2009 was $ 2.15, $1.70 and $2.19 per share, respectively.

Unrecognized Stock-Based Compensation

As of December 31, 2011, total unamortized stock-based compensation cost related to unvested stock options and restricted stock units was $30.9 million. This amount will be recognized as expense using the straight-line attribution method over the remaining weighted-average amortization period of 2.5 years.