Share-Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

Share-Based Compensation

MRV records share-based compensation expense in accordance with ASC Topic 718Compensation - Stock Compensation. The following table summarizes the impact on MRV's results of operations of recording share-based compensation for the nine months ended September 30, 2013 and 2012 (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2013		2012		2013		2012
Cost of goods sold		$27		$9		$70		$29
Product development and engineering	21		9		46		30
Selling, general and administrative	161		315		395		718
Total share-based compensation expense (1)		$209		$333		$511		$777

(1) Income tax benefits realized from stock option exercises and similar awards were immaterial in both periods.

The Company granted 80,242 stock options during the nine months ended September 30,2013 and the related weighted average fair value was $4.89 per share. The average fair value of 91,388 restricted shares granted during the nine months ended September 30, 2013 was $9.98 per share. The Company granted 17,736 stock options during the nine months ended September 30,2012 and the related weighted average fair value was $9.60 per share. The average fair value of 39,325 restricted shares granted during the nine months ended September 30, 2012 was $16.20 per share. As of September 30, 2013, the total unrecorded deferred share-based compensation balance for unvested securities, net of expected forfeitures, was$0.9 million, which is expected to be amortized over a weighted-average period of1.7 years.

Valuation Assumptions

MRV uses the Black-Scholes option pricing model to estimate the fair value of stock option awards or related modifications. The Black-Scholes model requires the use of subjective and complex assumptions including the option's expected life and the underlying stock price volatility. In 2012 MRV assumed volatility to approximate historical volatility. In 2013, MRV based volatility on the Company's historical quoted prices and peer company data. The following weighted average assumptions were used for estimating the fair value of options modified during the nine months ended September 30, 2013 and 2012, respectively:

Nine months ended September 30,	2013		2012
Risk-free interest rate	1.2	%	0.8	%
Dividend yield (1)	—		—
Volatility	51.9	%	89.0	%
Expected life (in years)	5.7		5.5

(1) As the Company does not pay a dividend on a regular basis, and dividends paid in the past have been special in nature, a dividend rate of zero was used.