Stock-Based Compensation

Stock-based compensation expense consists of compensation costs related to grants of stock options, RSUs and MSUs, and to the ESPP. The table below summarizes the stock-based compensation expense for the three and six months ended June 28, 2014 and June 29, 2013:



	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
Stock-based compensation expense:
Cost of goods sold	$	2,218	$	1,570	$	4,003	$	3,606
Research, development and engineering	2,310		2,621		4,783		5,095
Selling, general and administrative	2,977		3,002		5,309		5,515
Total stock-based compensation expense included in net loss from operations	$	7,505	$	7,193	$	14,095	$	14,216

Stock Options

The following table summarizes the Company’s stock option transactions for the six months ended June 28, 2014:



	Six Months Ended
	June 28, 2014
	Shares		Weighted-average exercise price per share
Outstanding at beginning of the period	34,724		$	6.59
Granted	1,371		13.07
Exercised	(11,041	)	6.19
Forfeited	(992	)	6.89
Outstanding at June 28, 2014	24,062		$	7.13

The following table summarizes the average estimates the Company used in the Black-Scholes option-pricing model during the three and six months ended June 28, 2014 and June 29, 2013, to determine the fair value of employee stock options granted during each period:



	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
Risk free interest rates	1.7	%	0.9	%	1.7	%	0.9	%
Expected life in years	5.00 years		5.00 years		5.00 years		5.00 years
Expected dividend yield	—	%	—	%	—	%	—	%
Expected volatility	55.5	%	64.0	%	55.7	%	64.0	%
Estimated annualized forfeiture rate	5.4	%	4.9	%	5.4	%	4.9	%

Restricted Stock Units and Market Based Restricted Stock Units

RSUs are converted into shares of Company common stock upon vesting on a one-for-one basis. The awards typically vest over four years and vesting is subject to the grantee’s continued service with the Company. The compensation expense related to the service-based RSU awards is determined using the fair market value of Company common stock on the date of the grant, and the compensation expense, reduced by estimated forfeitures, is recognized over the vesting period.

The Company grants MSUs to certain members of executive management. The number of shares that are ultimately awarded is contingent upon the achievement of pre-determined market and service conditions. Market conditions must be met for shares to be awarded, even if the service conditions are met. Fair value of the awards is determined at the grant date based on the target number of awards ultimately expected to be awarded. Compensation expense associated with the awards is calculated based on the target number of shares ultimately expected to be awarded and is recognized on a straight line basis over the requisite service period and will not be reversed even if the market conditions are not met. The number of shares of common stock to be awarded will range from zero to 150 percent of the target number of stock units based on the Company's total stockholder return (“TSR”) relative to the performance of companies in the SPDR S&P Semiconductor Index ("SPDR") for the applicable measurement period. TSR is calculated based on market performance between the beginning and end of the award period, generally over three years. Based on the number of awards outstanding as of June 28, 2014, the maximum number of shares of common stock that could be awarded is 514 shares.

The fair value of the MSUs was determined using a Monte Carlo simulation model. The Monte Carlo simulation model is affected by assumptions regarding subjective and complex variables. Generally, the Company's assumptions are based on historical information and judgment is required to determine if historical trends may be indicators of future outcomes.

Key assumptions used in the Monte-Carlo simulation model to determine the fair value of MSUs granted during each period were as follows:



	Three Months Ended				Six Months Ended
	June 28, 2014		June 29, 2013		June 28, 2014		June 29, 2013
Risk free interest rates	0.9	%	0.4	%	0.9	%	0.4	%
Expected dividend yield	—		—		—		—
Expected volatility	56.2	%	56.2	%	56.2	%	56.2	%
Correlation coefficient to SPDR	0.57		0.59		0.57		0.59

The following table summarizes RSU and MSU activity for the six months ended June 28, 2014:



	Six Months Ended
	June 28, 2014
	Stock Units		Weighted-average grant date fair value
Outstanding at beginning of the period	389		$	7.67
Granted	731		12.67
Vested	—		—
Forfeitures	(23	)	9.40
Outstanding at June 28, 2014	1,097		$	10.96

ESPP

Employees participating in the ESPP authorize the Company to withhold compensation and to use the withheld amounts to purchase shares of the Company's common stock at a discount.

The table below summarizes the ESPP common stock purchases for the three and six months ended June 28, 2014 and June 29, 2013.

Three Months Ended

Six Months Ended

June 28, 2014

June 29, 2013

June 28, 2014

June 29, 2013

Shares purchased

1,245

1,872

1,245

1,872